In this article, we will be talking about the difference between judicial and extrajudicial estate settlements. We will discuss when they are necessary, and what their advantages and disadvantages are.
A few days ago, I had a discussion with a potential client. He planned to sell a property which he and his brother inherited from their parents. They were in a hurry. They wanted to avoid going to court. In essence he asked, “Attorney, we always see on TV and in the movies that the courts are involved in matters of estate and inheritance. Is that always the case? We’ve experienced court cases before and we know how much time it takes for us to go through that process. Is there a way to avoid this?”
Apparently, some people avoid tackling matters involving estate settlement because they think that it is such a complicated process. They think the process will always involve lawyers and a full-blown case in court.
While court cases and trials can be the case for some families, this is actually not the general rule. Well, at least based on our experience.
Two kinds of Succession
There are actually 2 kinds of succession that happens in the Philippines. It all depends on whether a will was left by the person who died. Let’s discuss them in turn.
Testamentary Succession
When someone dies and leaves a valid will, testamentary succession takes place. In testamentary succession, we call the deceased, the testator. If this happens, we cannot avoid going to court. This is because the law requires that before implementing a will, it must first go through a court proceeding. We call this proceeding probate. In a probate proceeding, the court checks whether the will followed all the strict legal formalities.
The reason for including the courts in the process is pretty obvious. Since the testator already passed away, he can no longer confirm the contents of his will. As such, the court needs to ensure that the formal legal requirements were followed. The law put in these formal requirements to make sure that no hanky-panky occurred. Once the court determines that the will is valid, it will then appoint the executor. The executor will then proceed to administer the estate and implement the provisions in the will.
Intestate Succession
On the other hand, when someone dies with no will, the heirs will have to through intestate succession. In this case, we call the person who died, the decedent. The rules of who can inherit and their portions will be based on the rules in the Civil Code. However, while these rules are in place, there will be times where it will be difficult to partition the properties.
This can be due reasons such as the nature of the properties left behind or issues arising between the heirs. In such cases, we will need to involve the courts to decide upon and order the settlement of the estate. This is generally what we call the judicial settlement of the estate. In other words, we apply judicial settlement when the heirs cannot agree on how to divide the estate.
Two Kinds of Settlement
Now, let’s discuss the two kinds of settlement which are available under Philippine Laws.
Judicial Settlement of Estate
In a judicial settlement, the court will appoint an administrator who, as the term indicates, will administer the estate. This administrator will make sure to pay the obligations of the estate. These obligations include debts, recurring maintenance and administrative expenses,and even taxes. The administrator may also be in charge of submitting to the court, a proposal for how to divide the estate.
We call this proposal the Project of Partition. If the court order approves this proposal, the administrator will implement the proposal and distribute the estate to the heirs. Note that the appropriate taxes and fees should be paid within the period prescribed by law. Afterwards, the heirs should secure the necessary certifications. These certifications are required to transfer the properties to their names.
Extrajudicial Settlement
More often than not, however, in the Philippines, people settle estates extrajudicially or outside of courts. But, not all estates can be settled extrajudicially. The rules require certain things to happen before the heirs can resort to extrajudicial settlement. The requirements before resorting to extrajudicial settlement are:
- the decedent left no will;
- the decedent did not leave any debts or already paid them; and
- there are several heirs who are all of age. If there are minors, they have their duly authorized legal or judicial representatives representing them.
If we can meet the above requirements, then we can settle the estate extrajudicially. In this case, the heirs may now all agree among themselves how the estate will be divided by jointly executing a public instrument (notarized) typically called an “extrajudicial settlement”.
If there is only one heir, the sole heir should execute an “affidavit or self-adjudication” instead of an extrajudicial settlement. These public instruments will need to undergo publication. At the same time, the appropriate taxes and fees should be paid, within the period prescribed by law. Afterwards, the heirs should secure the necessary certifications so that the properties can be transferred to their names.
Advantages and Disadvantages of Judicial Settlement
The advantage to a judicial settlement of estate is that there is an objective third party, the court. The court will make sure it settles the estate legally and fairly. This is very important especially when the heirs cannot agree or do not see eye to eye. The disadvantage however is that the specific procedures and various remedies under a judicial settlement can be very complicated. It is very possible that it will take the court a a very long time before rendering a final judgment.
I remember that when I was a kid. My mom (who is a lawyer) was handling, what was then to us, a very big estate settlement case. Years later, I was already well into law school assisting her in her practice and I still saw that my mom was receiving court orders on that same case. Of course, each case is different, but my point is that delays are very possible.
In addition, very long, drawn-out cases will necessarily mean more expenses in the form of professional fees, possibly court fees, bonds, maintenance fees and what not. The bottom line is that judicial settlements may prove to be very costly, especially if the estate left behind is not even income-generating.
Advantages and Disadvantages of Extrajudicial Settlement
On the other hand, the advantage of an extrajudicial settlement is that the settlement can be done relatively very quickly. The fastest extrajudicial settlement I experienced was around a month.
Some cases took a little longer but that was more due to reasons which are not insurmountable such as pandemic restrictions, slow reaction time of the heirs (in coming up with the money to pay the estate tax, providing documents or making decisions) or heavy docket load of the government agencies involved.
The disadvantage to this however is that it requires the one most important thing that makes extrajudicial settlements easier and more desirable...that all the heirs agree to the division of the properties. For some families, this comes easily. For some, it does not...especially when rights, interests and assets come into play.
Our Recommendation
Obviously, between the judicial settlement and extrajudicial settlement, I prefer the latter. Since extrajudicial settlement is relatively faster, the heirs can become the owners of their inherited properties more quickly. They are now free to do with it as they please. In my experience extrajudicial settlements lead to more smiling faces at the end of our engagement, which is more fulfilling to me as a service professional, and I imagine, more fulfilling for the heirs.
If you are in the process of settling the estate of your loved ones, I invite you to be open to discussing with your co-heirs how best to be able to settle the estate extrajudicially. Though not required, you may even want to also involve estate settlement professionals (not necessarily lawyers) who may help guide you and your family in coming up with solutions to dividing the estate fairly or equitably and guide you through the process.
If however, judicial settlement is inevitable, then legal representation will definitely be necessary. As such, you will want to ensure that the lawyers you will choose to represent you are knowledgeable and preferably have substantial experience in these matters.
I hope we were able to clarify things for you. But in case you have more questions, we have something that can help. Read on.
If you have more questions about Estate Settlement, here’s an additional resource
I hope the article was able to help you out, but chances are you may have more questions about Estate Settlement. Please check out this additional resource and see if it can help you. Go to info.legalguide.ph/estate to learn more.
