Hi all
I’m currently in the process of updating my will. I don’t live in Japan but I have some nephews who do and they will be receiving inheritance from me. I’m trying to think of the best options for transferring the money so as to minimize the Japanese inheritance tax.
I was wondering about the feasibility of setting up a trust for them that would send them a yearly gift of 1.1 million yen until they reach some age (35 say) when they would receive any remaining balance. Would this type of setup avoid inheritance tax until they receive the balance at age 35?
Is the yearly gift exemption of 1.1 million yen the maximum gifts that a person can receive in a year or the maximum that they can receive from one person? So would another option be to have my wife send yearly gifts in addition to the trust?
Is there anything special that an executor should be aware of when sending an inheritance to Japan?
Thanks in advance for your help.
by aprefontaine
7 comments
I am not a tax lawyer, but I do not think receiving money from a trust will be considered a gift. Yes, the amount is the total amount, so no double dipping.
Trusts are transparent in Japan, i.e. regardless of the distribution instructions they will be considered to have received the total amount one shot upon your death.
But first, are you sure you have enough money that they would even have any tax to pay when inheriting? The way basic exemptions work is very advantageous to Japanese heirs when the deceased is a foreigner living outside Japan and most of the inheritors are also outside of Japan.
The wiki has a section on [inheritance tax](https://japanfinance.github.io/tax/inheritance/).
Following since I have a similar challenge I need to plan for.
>Is the yearly gift exemption of 1.1 million yen the maximum gifts that a person can receive in a year or the maximum that they can receive from one person? So would another option be to have my wife send yearly gifts in addition to the trust?
Unlike in America where each person can give as many people as they want $16k/year without it counting against their lifetime giving allowance, Japan does this based on the recipient. So adding your wife into the equation as a giver doesn’t help anything.
Where your wife does help is that she is a statutory heir of yours and thus increases the deductible before any taxes apply. Also, eventually she might pass away as well giving another chance to pass on an inheritance.
There’s no magic here. have your kids leave 10 years before your death or they will pay tax.
> Would this type of setup avoid inheritance tax until they receive the balance at age 35?
No. Becoming a beneficiary of a trust triggers a gift tax liability, even if the trust has not made distributions. See [here](https://www.nta.go.jp/taxes/shiraberu/taxanswer/zoyo/4427.htm).
For this reason, trusts are not typically used for Japanese gift/inheritance minimization purposes.
> Is the yearly gift exemption of 1.1 million yen the maximum gifts that a person can receive in a year or the maximum that they can receive from one person?
It is the basic deduction applicable to the total of all gifts received by the taxpayer. The number of donors is irrelevant.
> Is there anything special that an executor should be aware of when sending an inheritance to Japan?
Inheritance tax returns are due 10 months after the relevant death, even if the executor has not finished distributing the estate. So it would be in the interest of any Japan-resident heirs for the executor to distribute their portion of the estate as soon as possible after the death, to give them sufficient time to evaluate their Japanese tax liability, prepare an inheritance tax return, etc.
If you really want to make things as simple as possible for your nephews, you could consider hiring a Japanese tax accountant (税理士) prior to your death, to get advice regarding the type of documentation that would be needed in order for your nephews to file an inheritance tax return.