As the well-known saying goes: “the only certainties in life are death and taxes”, and both of these certainties necessitate basic estate planning. However, preparing for inheritance tax is no simple feat. Timing of death, total asset values, your and your beneficiary’s nationalities and country of residence at time of death, domicile of any physical assets, etc… these are just some of the variables which could impact the severity of the eventual tax bill.
It certainly does not help that inheritance tax laws are famously erratic. Tax rates and deductions rise and fall with changes in government, economic conditions, and public spending requirements. The majority of tax professionals recommend erring on the side of caution when trying to predict what the inheritance tax code could look like in 5, 10, 15, 20 years into the future.
|The present-day rates of inheritance tax in japan are as follows:|
|Estate Value||tax rate||Deduction|
|10 million yen or less||10%||–|
|30 million yen or less||15%||500,000 yen|
|50 million yen or less||20%||2 million yen|
|100 million yen or less||30%||7 million yen|
|200 million yen or less||40%||17 million yen|
|300 million yen or less||45%||27 million yen|
|600 million yen or less||50%||42 million yen|
|600 million yen more than||55%||72 million yen|
With larger estates, inheritance planning often involves setting up holding companies, trusts, or foundations. Which of these structures or combination of structures to choose largely depends on the variables similar to those mentioned above. However, it should go without saying, such legal structures will involve initial setup costs as well as annual operating costs. For larger estates, these costs are more than justified by the value received. With smaller estates you may find that your beneficiaries fall within tax-free inheritance allowances, and owe no extra taxes to begin with. However, for many people in the middle, their family could have a sizable tax specter looming over them, but not enough to justify complex estate planning.
It turns out that there actually is a way to protect your heirs from a large unexpected tax bill; and it keeps the tax authorities quite happy as well. Rather than spending money on legal and fiduciary fees to reduce, delay, or eliminate tax; it could be simpler and cheaper to just to set up a life insurance policy with the death benefit equal to the estimated inheritance tax liability. Premiums paid to fund the insurance policy will reduce the taxable estate as well, further reducing the beneficiary’s eventual inheritance tax bill.
There are, however, many different types of insurance, available from various companies and in different parts of the world. Depending on your nationality and residence, as well as that of your beneficiaries, the proceeds from a life insurance policy could be taxable or they could be untaxed; depending upon which kind of insurance policy you decide to purchase. It is imperative to discuss your complete financial situation with a knowledgeable advisor to properly assess your inheritance tax position. From there you should be able to determine if it makes sense to begin taking steps to protect your heirs from unnecessary tax burdens.
– Auerbach, Alan, and Kevin Hasset, “Capital Taxation in the 21st century”, 2015, American Economic Review
– Piketty, Thomas and Gabriel Zucman, Wealth and Inheritance in the Long Run, in Handbook of Income Distribution, A. Atkinson, F. Bourguignon, eds., vol; 2, Elsevier, 2015
– The Stewardship of Wealth – Gregory Curtis – Wiley Finance
– Japan National Tax Agency, Publication No.4152: “Calculation of the Inheritance Tax.”