Most people don’t like to allocate much time to thinking about their demise; it doesn’t make getting up for work on Monday morning any easier. Even in those rare moments when mortality may cross our minds rarely do we give any thought to the logistics of it all, i.e. where will I be when I die?
If you are fortunate enough to reach old age then its possible that you will have assets (money, investments, property, businesses) that you have accumulated throughout your working life. Ordinarily, in preparation for old-age (or even sooner if you are conscientious with your financial planning) many people will write a “last will and testament” to outline how they wish their assets, or their “estate” to be divvied up amongst their loved ones after they’ve passed. This “will”, in most countries is essentially a legally binding document that will dictate the proceedings in liquidating and/or transferring your assets on, in line with your wishes.
However there are a handful of countries that have laws of “forced heirship” or “forced intestacy” whereby government legislation pertaining to the division of a persons estate on death supersedes any last will and testament that the person may have created. Japan is one such country.
Forced heirship laws require a deceased person’s estate to pass to one or more blood relatives (usually children and grandchildren) and/or a surviving spouse, who are referred to as the “protected heirs”. Japan uses the Civil law system which means that forced heirship rules apply and surviving spouse and descendants are entitled to one-half of the estate , and if only ascendants survive, one-third passes to the ascendants. This makes it impossible to distribute assets to those currently outside of your immediate familial group.
Trusts have traditionally been used to reduce inheritance tax (IHT) liabilities across the world and allow for tailor-made generation planning ensuring the maximum possible transfer of assets, reducing costs and minimising tax liabilities where possible. Japan too has a Trust Act but, like numerous other areas in Japanese law, there are still countless gray areas when dealing on an international scale, i.e. how would a UK trust be treated? How would a US trust be treated? What if the Settlor becomes a permanent resident of Japan?
These complications withstanding, it is prudent to draw up a last will and testament and review it at 5-yearly intervals as your circumstances change. The law regarding inheritance tax and heirship can become complex when dealing across multiple jurisdictions with differing systems but often there are structures which can be used to satisfy the legal requirements of both sides, and still prove to be useful in reducing cost, tax liabilities and unnecessary hardship for your loved ones once you’re gone.
As with all financial planning; it’s invariably easier and more cost effective to address these issues sooner rather than later.
CFA Institute; cfa program 2012; estate planning appendices
Price Waterhouse Coopers- Estate Taxation Highlights Issue 10, January 2013 Tax Reform Proposal: Impact on Estate Taxation
Price Waterhouse Coopers- Estate Taxation Highlights, Issue 2, October 2010