Waiving the Compulsory Portion of an Inheritance: When is it Wise to Opt Out?
Situations where an individual might choose to renounce the mandatory share in an inheritance: - Opting out of the mandatory share in inheritance: When is it advisable?
An informative chat by Marieke Einbrodt* ~4 Min
Key Topics:* Inheritance* Compulsory portion* Will* Inheritance tax* Estate
Ever wondered when it's the right moment to relinquish the compulsory portion of an inheritance? Let's dive into the intricacies of Philippine inheritance law and find out!
1. When to Opt Out: The Compulsory Portion and Renunciation
Under Philippine inheritance law, the compulsory portion (also known as the legitime) is protected by statute and is non-waivable during the decedent's lifetime. However, compulsory heirs may voluntarily renounce their share after the decedent's death, provided they execute a formal renunciation deed and file it with the court.
While any agreement to waive inheritance rights before the decedent's death is deemed invalid, it's important to keep in mind that renouncing the compulsory portion shifts the waived share to other heirs or the free portion of the estate, which the decedent could freely dispose of via their will.
2. Consequences on Inheritance Tax and Estate Distribution
The renounced legitime remains part of the taxable estate and is taxed as if it were retained by the heir. The renouncing heir still owes tax on the waived share unless another heir assumes the liability.
Without renunciation, the estate is divided per statutory shares, with legitimate children and the spouse receiving equal shares, and illegitimate children obtaining half of a legitimate child’s share. On the other hand, with renunciation, the renounced portion is added to the free portion of the estate, giving the decedent more flexibility in their estate plan or enabling charitable bequests.
3. Practical Implications
By waiving the legitime, the estate can allocate more resources to discretionary heirs or charitable causes, provided the arrangement complies with succession law. It's crucial to note that renunciation does not retroactively alter the decedent’s estate plan or invalidate existing legitime allocations.
In Conclusion:
The legitime is secure during the decedent's life but can be renounced posthumously. Renunciation affects the distribution of the estate and the inheritance tax, but it does not impact the decedent’s original estate plan.
- The right to receive the compulsory portion of an inheritance, known as the legitime, can be waived after the decedent's death through a formal renunciation deed and court filing.
- Renouncing the legitime reassigns the waived share to other heirs or the free portion of the estate, which may impact the distribution of the estate and the inheritance tax liabilities.
- In 2024, the finance ministry may introduce minimum inheritance benefit rights that potentially accrue to the children of the decedent, regardless of whether they renounce or inherit the legitime.
- Opting to renounce the compulsory portion of an inheritance can offer flexibility in business and financial affairs, as the freed resources can be allocated to discretionary heirs, charitable causes, or other desired purposes, subject to succession law compliance.