BRIEF OVERVIEW OF
JAPANESE INHERITANCE AND GIFT TAXES
vs.
AMERICAN ESTATE AND GIFT TAXES
JAPANESE INHERITANCE AND GIFT TAXES
vs.
AMERICAN ESTATE AND GIFT TAXES
(2011 Update)
NOTE: This information has been updated. The new post can be found at: http://willstrustsestates.blogspot.com/2014/08/japanese-inheritance-tax-vs-us-estate.htmlI. Estate Taxes
A. America
1. Citizens and Permanent Residents
a. Tax on Worldwide property (credit for taxes paid to foreign countries)
b. Exemption of $5,000,000 in 2011 and 2012 (theoretically back to $1,000,000 in 2013 if no change to Federal Estate Tax). For married couples, the exemption amount is $10,000,000 as a result of portability.
c. Tax of 35% on amount over $5,000,000
d. Unlimited Marital Deduction for Surviving Spouse if Surviving Spouse is a citizen
b. Exemption of $5,000,000 in 2011 and 2012 (theoretically back to $1,000,000 in 2013 if no change to Federal Estate Tax). For married couples, the exemption amount is $10,000,000 as a result of portability.
c. Tax of 35% on amount over $5,000,000
d. Unlimited Marital Deduction for Surviving Spouse if Surviving Spouse is a citizen
2. Non-Citizens/Non-Permanent Residents
a. Tax only on Real Property and business interests in the United States (Cash in foreign banks and foreign stocks are not taxed)
b. Exemption of $13,000
c. Tax of between 18%-35% on amount over $13,000
d. Unlimited Marital deduction if Surviving Spouse a citizen
b. Exemption of $13,000
c. Tax of between 18%-35% on amount over $13,000
d. Unlimited Marital deduction if Surviving Spouse a citizen
B. Japan (Actually an Inheritance tax, not an estate tax)
1. Japanese Citizens and Permanent Residents
a. Exemption of ¥50,000,000 + (¥10,000,000 for each statutory heir); Possible additional exemption for insurance money, retirement savings, and money left to handicapped individuals
b. Additional exemption for life insurance received of ¥5,000,000 multiplied by the number of statutory heirs
c. Tax between 10%-50% for statutory heirs; Tax between 30% to 70% for everyone other else (except charities);
d. For property outside of Japan, a beneficiary that acquires property will be subject to Japanese inheritance tax if the beneficiary is a Japanese national and the beneficiary was domiciled in Japan at any time during the five years preceding the receipt of the inheritance.
e. A surviving spouse is entitled to a tax deduction. This is a complex formula based upon who is living at the time of the Decedent's death and where the money goes. Generally, a surviving spouse can deduct about 1/2 to 2/3 of the tax.
b. Additional exemption for life insurance received of ¥5,000,000 multiplied by the number of statutory heirs
c. Tax between 10%-50% for statutory heirs; Tax between 30% to 70% for everyone other else (except charities);
d. For property outside of Japan, a beneficiary that acquires property will be subject to Japanese inheritance tax if the beneficiary is a Japanese national and the beneficiary was domiciled in Japan at any time during the five years preceding the receipt of the inheritance.
e. A surviving spouse is entitled to a tax deduction. This is a complex formula based upon who is living at the time of the Decedent's death and where the money goes. Generally, a surviving spouse can deduct about 1/2 to 2/3 of the tax.
2. Non-Citizens/Non-Permanent Residents
a. If beneficiary is not Japanese and not living in Japan and property is not in Japan, appears Country where property located will tax such property.
b. If there is a tax, it appears a surviving spouse is entitled to the same marital tax deduction as for Japanese citizens.
b. If there is a tax, it appears a surviving spouse is entitled to the same marital tax deduction as for Japanese citizens.
II. Gift Taxes
A. America
1. Citizens and Permanent Residents
a. Tax on all gift transfers of Worldwide property
b. Annual exemption of $13,000 per person/per donee (unlimited gifts for donees if different donors)
c. An annual gift to a non-citizen, permanent resident spouse, of $136,000 is available.
d. Lifetime exemption of $5,000,000 (for years 2011 and 2012)
e. Gifts may be split with spouse
f. Tax rate of 35% if lifetime gifts exceed $5,000,000
b. Annual exemption of $13,000 per person/per donee (unlimited gifts for donees if different donors)
c. An annual gift to a non-citizen, permanent resident spouse, of $136,000 is available.
d. Lifetime exemption of $5,000,000 (for years 2011 and 2012)
e. Gifts may be split with spouse
f. Tax rate of 35% if lifetime gifts exceed $5,000,000
2. Non-Citizens/Non-Permanent Residents
a. Tax on all gift transfers of US Property (including Cash and Stocks in US companies)
b. Annual exemption of $13,000 per person/per donee (unlimited gifts for donees if different donors)
c. No Lifetime exemption
d. Gifts may be split with spouse
e. Tax rate of 18%-35% if lifetime gifts exceed $13,000
b. Annual exemption of $13,000 per person/per donee (unlimited gifts for donees if different donors)
c. No Lifetime exemption
d. Gifts may be split with spouse
e. Tax rate of 18%-35% if lifetime gifts exceed $13,000
B. Japan (Rates between 10%-50%)
1. Citizens and Permanent Residents of Japan
a. Annual exemption of ¥1,100,000 for each beneficiary (beneficiary taxed after this)
b. One time spouse exemption of ¥20,000,000
c. For property outside of Japan, a donee that acquires property will be subject to Japanese gift tax if the donee is a Japanese national and the donee was domiciled in Japan at any time during the five years preceding the receipt of the gift.
b. One time spouse exemption of ¥20,000,000
c. For property outside of Japan, a donee that acquires property will be subject to Japanese gift tax if the donee is a Japanese national and the donee was domiciled in Japan at any time during the five years preceding the receipt of the gift.
2. Non-Citizens/Non-Permanent Residents
a. Annual exemption of ¥1,100,000 for each beneficiary(unclear – enforcement is almost impossible)
III. Generation Skipping Taxes (Taxes on gifts or bequests to grandchildren)
A. America
1. Exemption of $5,000,000 in 2011 and 2012 (theoretically a return to a $1,000,000 exemption in 2013, but indexed for inflation)
2. Tax of 35% on rest
2. Tax of 35% on rest
B. Japan
For more information on Japanese taxes, the Japanese government has a nice website in English with some helpful facts. This is a link directly to the inheritance tax information:
http://www.mof.go.jp/english/tax_policy/publication/taxes2010e/taxes2010e_d.pdf
It is worthwhile reading the Japanese publication if you have business interests in Japan or if one of other special circumstances (like a handicapped heir) as there are many credits available.
1. None
For more information on Japanese taxes, the Japanese government has a nice website in English with some helpful facts. This is a link directly to the inheritance tax information:
http://www.mof.go.jp/english/tax_policy/publication/taxes2010e/taxes2010e_d.pdf
It is worthwhile reading the Japanese publication if you have business interests in Japan or if one of other special circumstances (like a handicapped heir) as there are many credits available.
48 comments:
Dear Kevin,
My mother, a Japanese citizen passed away in Japan in Jan 2011 and I am the sole heir, a US citizen residing in the US. My mother assets are a house, stocks and money in a bank. The property (or land) is leased. I've been told that there was no inheritance tax on the house, but the law recently changed. I have been given conflicting information, that there is tax on the house, but not the property, and I have also been told that there is a 50%, 70% and 100% inheritance on the value of the land even though we do not own the land depending on who you ask. How do I calculate Japanese inheritance tax? What exactly is taxed, the land or the house or both? And what percent of the leased land value is used for inheritance tax? Do I owe any US inheritance tax? Thank you.
Dear Anonymous,
I am not sure who you are talking to, but if the law recently changed, I am unaware of it. I am not licensed to practice law in Japan and I am only trying to help people based upon what I can find in the public domain. I would recommend contacting a Japanese attorney. Please email me through my website if you would like a few names.
Dear Kevin,
My husband is a Japanese national who has lived in the US for 20+ years. His father recently passed away, leaving an estate to be split between him, his Mom and two siblings -- all of whom are in Japan. Couple of questions:
1. Which country does he have to pay taxes in? Japan, US, both?
a) Can he avoid the Japanese inheritance tax by becoming a US citizen?
b) If he inherits as a US citizen, what taxes does he have to pay here?
c) If he inherits as a Japanese citizen and pays the Japanese inheritance tax, do we still have to report the income on our annual taxes and pay again?
Thank you.
Dear Anonymous,
I'm sorry to hear about your father in law. In response to your questions:
1) Assuming your father in law lived in Japan, all taxes would be owed to Japan.
2) It is too late to avoid the taxes by becoming a citizen.
3) Japan will govern the taxes.
4) Inheritances are not subject to a US income tax.
My 80 yr old Widowed Mother (Japanese National) has lived in California since 1965 as a permanent resident alien. Her brother (native Japanese never married, living in Japan) died unexpectedly and she has some inheritence in cash coming to her. From what I have read online She has no U.S./State Tax obligation, However for Japan Inheritence Tax does she file like we do in the U.S at the end of the tax year? or at the moment she receives it? I have read in various websites about prefecture (Japan's State Provinces) and other confusing things. It's just cash being split between her brothers and sisters still living in Japan and her. just don't know how it all works and want to give her the best information as possible as her English is still (after all these years) still limited.
Dear Anonymous,
If a Japanese national passes in Japan leaving money to another Japanese national, there will be an inheritance tax to the extent it exceeds the exceptions allowed by Japan.
The amount of the tax will depend upon the amount of the estate.
There should be no taxes owed to US because of the treaty between the US and Japan.
I recommend working with a Japanese attorney or accountant to help withthe exact numbers.
Dear Mr. Pollack,
Are you aware of an English translation of the Japanese gift and inheritance tax laws? I have looked online to no avail. Thank you.
Yes, if you notice at the end of my blog post, it gives a link to: http://www.mof.go.jp/english/tax_policy/publication/taxes2010e/taxes2010e_d.pdf
Dear Kevin,
what would be the tax implication from japan perspective (if any) if client is a Singapore Tax Resident having a Singapore Trust where beneficiary domiciled in Japan? thanks.
With respect to a Singapore Trust and Japanese law. I'm sorry, I don't know the answer. That is way outside my scope of practice. It would be advisable to contact a Singapore tax attorney. Best of luck.
Dear Kevin,
I am an American citizen and a permanent resident of Japan. An American cousin of mine who lived in the U.S. died recently and has apparently left me some money (I don't yet know the amount). You have mentioned an exemption of ￥50,000,000, but will that exemption apply in a case like this, where the deceased is not a very close relative of mine (his mother was my grandmother's sister)? Thank you.
I am sorry to hear about the loss of your cousin. Since you have stated that your cousin was American, unless he owned real estate or business interests in Japan, the United States will be the ones taxing your cousin's estate.
The amount of the tax will depend upon his total estate and in which state your cousin lived.
Dear Kevin,
You might want to edit your response (Sept. 26) to the last query on Japanese inheritance matters. The writer of that message is a permanent resident of Japan and will therefore have to pay Japanese tax on all income received word-wide, including inheritance money, just as if he or she were a Japanese citizen. It doesn't matter where the deceased lived or whether the inheritance money is actually brought into Japan or not. What's worse, there's an additional 20% surtax on the inheritance tax amount in cases like this one in which the deceased is, according to Japanese law, considered 'non-family' (meaning 'not a close family member').
An incomplete but fairly detailed version of the facts (see pages 5 and 17 of the pdf file--not of the document as printed) can be found at:
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/TIES/pages/taxation-of-international-executives-2010.aspx
You need to click Japan on the list of countries to see the pdf. file
(I'm not suggesting you should put my comment in the blog... I just didn't know of a better way to get in touch with you and give you a heads up). Cheers. I enjoy your blog.
Thanks for the feedback, but, while the KPMG article is helpful, I do not think it contradicts me. The United States and Japan have a estate/inheritance tax treaty which supercedes the Japanese inheritance tax laws. I believe your assessment is correct for individuals domiciled in Japan when the beneficiary inherits from someone located in a country that does not have such a tax treaty. Again - I'm not licensed in Japan, so this is just my opinion based upon the English information available to me.
Ah, I see. I missed that point.
I had a look at the various US-Japan tax treaties themselves last night and found the wording hair-raisingly opaque. To be completely sure about such matters, do you recommend a person talk to a private Japanese tax accountant? (My experience with talking directly with local tax-office officials is that they tried very hard to be helpful but weren't familiar with the complex laws involving foreigners. In my case three separate tax-office workers over three separate tax-return years miscalculated my credit for taxes I had paid to the U.S. before a fourth tax-official finally got it right in the fourth year and informed me by phone of the errors the other three had made. Each of the four people calculated the tax credit quite differently. It's hard for an ordinary person to know who to appeal to for the final word in such matters.)
With all due respect, I do not think most local tax officials will be able to help with complex tax matters such as these. You will probably need to contact a larger accounting firm or a Japanese tax attorney. Please email me directly through my website if you would like some recommendations. http://pollockatlaw.com/contactus.html
I just love your blog and I think your article is so awesome!! I love antiques and what a way to go green!! I think the towels would just be so adorable also. Thanks for sharing the story about how it was made. Makes it that more special! Take care, Fran.
Dear Kevin,
Thank you for taking the time to write and maintain this incredibly informative blog. As a typical human who has blissfully ignored the death section of taxes, I find the information you share in this blog to be very enlightening in a confusing topic. Living in the US, we hear tidbits of US inheritance law along the way, but Japanese inheritance law just doesn’t come up here. My wife of 29+ years left her native Japan before learning much more than I knew of US inheritance law in my early 20s. Again, thank you!
My wife is a Japanese citizen and has been a US permanent resident alien for the past 29 years. She is listed in her father’s Kosekitohon and her passport still shows her maiden name followed by my family name in parentheses. She has a surviving mother, a brother living in a different part of Japan with his family, and a sister who has been living with their parents for several years. All my in-laws are Japanese citizens and reside in Japan. Unfortunately, my father-in-law died last month (but thankfully during my wife’s annual visit, so she got to see him before he passed). I do not believe he had a will. All inheritance assets are physically in Japan.
As I understand it (please correct my assumptions):
1) My mother-in-law will inherit ½ of the estate and the three siblings will split the other half, and each portion will be taxed according to the status of the heir.
2) My wife is entitled to a minium Absolute portion (“iryubun”) of 1/12 share (one-half of one-third of the children’s half shrare) even if a will exists.
3) Even in my wife’s case, only Japan will tax the inheritance.
4) Neither I, the wife of my brother-in-law, nor any of the siblings’ children will be considered heirs for the sake of an inheritance share in the absence of a will specifying otherwise (I do not believe the son of my sister-in-law is listed as a child of my father-in-law on the Kosekitohon).
My real questions are:
1) Will my wife, as a non-resident Japanese citizen, be at any particular disadvantage in the inheritance ranking?
2) Will my wife’s share be taxed higher or will her deduction be reduced due to her non-resident status?
3) Does my wife’s 6- 8- and 9-weeks stays in Japan in the past 3 years make her considered “domiciled in Japan within 5 years prior to the inheritance?” (Using Japan’s legal definition of “domiciled”)
4) At what point would my wife be considered “domiciled in Japan” if she stayed longer than her planned 9 weeks to help her mother?
5) And finally, my brother-in-law is planning to move to the family home for about 4 months out of the year (making the family home his legal address, although leaving his wife to stay in their real home) to reduce his inheritance taxes as someone who lives in the home he plans to inherit from his mother. How does this work? This was a tip from my sister-in-law that he said he had not heard of before? Is it a legitimate consideration aside from the joy (and hopefully aid) my mother-in-law will have during those stays?
Your explanations and guidance will be greatly appreciated, and I hope this situation will help other readers with their situations.
-James
Dear James,
I'm sorry to hear about the loss of your father-in-law. Inheritance law in Japan is a bit tricky, and I suggest you contact local counsel. Since I am only licenced in America, I can not provide you with answers to your questions which are very personal and specific.
As best I can understand, your assumptions, which are based upon the Japanese Civil Code, are correct with one major exception - if there is no Will, the survivors of a decedent can come to any sort of agreement they want on distribution of the estate. (see: http://www.ofix.or.jp/life/eng/marriage/10.html)
Best of luck.
My parents are Japanese citizens and reside in Japan. I am a US citizen and have been living in the U.S for the last 10 years. Is it correct that I will be subject to Japanese inheritance tax regardless of my nationality and residency as long as my parents are Japanese and the assets are in Japan? What about the assets outside of Japan? Are they subject to the five-year rule? Thank you.
Dear Sir,
My father is a US Citizen and my mother is a Japanese National with a green card and she has resided here for over 30 years. If my father were to pass away, what kind of taxes would she be subject to? Currently they only own a home together (joint ownership), no other significant assets beyond that, and they both live on Social Security. Thank you in advance.
Dear Anonymous of 1/27/2012,
I believe your understanding is the same as mine. It does appear that the assets in Japan will be taxed, and the assets outside of Japan will be subject to the five year rule. As always, I am not licensed in Japan, and I am only able read English translations of the Japanese laws, so you should consult a Japanese attorney or accountant.
Dear Zyratek,
Under the current federal estate tax law (set to expire in at the end of this year), your father can leave your mother $5,000,000 before your mother has to worry about the estate tax. Even then - there are ways to defer it further. In 2013, unless the law is changed, your father can only leave her $1,000,000 before your mother has to pay a federal estate tax - again, there are still ways to defer this.
There may also be state estate taxes depending upon where you live.
Dear Kevin,
I was reading the response that you gave to Zyratek and my own parents are in a similar situation (Father is a US citizen and my Mother has a green card). They jointly own a house and currently they do not have total assets worth more than $1 million. However, they also do not have a will or living trust and they currently reside in the State of Hawaii. If my father were to pass away in this current situation, would the $5 million or $1 million exemption still apply? Any advice that you can provide would be greatly appreciated. Thank you.
Dear Anonymous of 2/1,
Yes, since your parents have less than $1,000,000, they should not be affected by the federal estate tax law now or after 2013 unless their assets grow. I also understand that Hawaii instituted as estate tax for estates over $3,500,000 - but you should consult with a lawyer in Hawaii as I am not licensed there.
Regardless of tax planning, your parents should still prepare Wills, Powers of Attorney and Health Care Directives to ease the administrative burden when one of them passes.
Dear Kevin, My aunt in Japan does not have any children. She wants to leave her property- house for me. I'm a US citizen - Japanese, not living in Japan. Will I have to pay inheritance tax? What woul be the best way so that I do not have to pay tax.
Regards,
Dear Chako,
If a person dies owning real estate in Japan, Japan has a right to tax that real estate.
As for the best way to minimize the tax, there are many ways to do so. However, if you would like specific advise, kindly call for a consultation.
Dr. Mr. Pollack, I have a similar situation to Chako. I have an aunt in Japan who has no children. My mother has passed away, so I no longer have an interpreter, but was previously told that my aunt intended for my siblings and I to inherit her home once she passed away. My aunt now has a border and my mother was concerned that this person would try to take over the home once my aunt passed away. Do you have any advice on how to determine her will/how we can address this issue as we have a language barrier?
Dear Anonymous of 12/29/12,
I'm sorry, this is not something I can help you with. You need to seek legal counsel in Japan. I know of two attorneys who handle estate matters who speak English if you need a referral.
Yes, that would be great. Thanks so much.
Dear Anonymous,
Please email me by going to: http://www.pollockatlaw.com/
There is a "contact us" link there. Sorry, I don't like to post my email because of all the spam it generates.
Let me know what part of Japan.
Dear Kevin,
Wonderful detailed informative blog. Thank you. I have a question to which I have not been able to get a clear answer on... My mother who was born in Japan but living in the U.S. for over 40 years passed away last year in the U.S. Long story short is that a "wrongful death" settlement was agreed upon which will be split between the only remaining heirs my sister and I. My situation is that I am a U.S. citizen that has been living in Japan for the last 3 and a half years. My portion of the settlement will under the 50 million yen inheritance exclusion for Japanese Nationals, but I am not sure if this can be classified as "inheritance" in Japan. I am not a Japanese National or permanent residence since I haven't lived here 5 years yet. My question is to what extent if any should I expect to be taxed under different scenarios...One, I leave the money in a U.S. bank. Or two, I have the settlement sent to Japan and put it in a Japanese bank. Thank you.
Dear Anonymous of 1/20,
I honestly don't know about the taxation of wrongful death settlements. You probably need to speak with a Japanese accountant. Most likely, if the payment was made to the estate, it is a taxable inheritance. If payment is to be made to you and your siblings individually, that gets taxed differently. Best of luck.
Dear Kevin,
Is the below still true... because it seems to good to be true! I am an american with permanent residency in Japan. My mother has decided to will her property 50%/50% to myself and my brother when she passes. Hopefully long in the future. Wil I really have no tax inheritance liability in Japan?
d. For property outside of Japan, a beneficiary that acquires property will be subject to Japanese inheritance tax if the beneficiary is a Japanese national and the beneficiary was domiciled in Japan at any time during the five years preceding the receipt of the inheritance.
Thanks,
Dan
Dear Dan,
Assuming your mother is a US resident and citizen and does not own real estate in Japan, due to the estate tax treaty between the US and Japan, you would not have pay an inheritance tax in Japan because the US reserves the right to tax your mother's estate.
Best of luck and hopefully you don't have to worry about it for a long time.
Dear Kevin,
My wife is Japanese citizen, but is a US Resident with green card. We live in Seattle for the last 5. Her mother, who is Japanese and lived in Japan, passed away recently leaving us land in both Japan and Hawaii. My wife is paying a large amount of tax in Japan for all the properties. I have two question.
1. My wife was told, by a Japanese lawyer and Japanese accountant, she must pay the tax on the Hawaii estate in Japan. Well we also have to pay an estate tax in the US on that same property?
2. Some CD’s were also left in Hawaii bank account where my wife is the beneficiary. How are the tax’s handled on those.
Thank you
Dear Mr. Pollock,
Your blog is wonderful and I learned a lot by reading each posting and your responces.
I have a question regarding gift tax. My father is about to receive inheritance from his cousin because he was her legal guardian. She recently passed away. She does't have any children and at will, she declares him as an only person to receive her inheritance. I'm a US citizen and lives in US(California)for over 20 years. My father is a Japanese national and lives in Japan. He wants me to give some of the inheritance as a gift. Am I required to pay gift tax in US and Japan? If so, how much is it in each country? The amount is less than 6000MAN. (the amount listed in your website as an exception although I'm unsure whether it's relevent.) Assuming $1=100 yen, it's less than $600,000.
Thank you!
Rie
Hi Kevin,
Thanks for the information. I contacted the Japanese National Taxation Agency directly and asked and it seems that the tax treaty has changed. I may have some inheritance tax in Japan depending on the size of the estate. For example, on an inheritance of $100,000 my tax liability can be as high as $35,000 (USD$1 -JPY¥100). But the Foreign Tax Credit does apply and this amount would be reduced by what was paid first to the IRS.
Quite confusing and I think that I better find a Zeirishi.
Dan
Dear Thomas,
Because your wife is still a Japanese citizen, Japan reserves the right to impose the inheritance tax on Japanese situated property AND pretty much anything other than foreign land. The U.S. has the right to land in America. The treaty should avoid a double tax. I strongly recommend that you work with someone familiar with this and the reporting requirements you will have: http://willstrustsestates.blogspot.com/2013/06/receiving-gifts-or-inheritance-from.html
Dear Rie,
First, I presume you are only a US citizen and haven't kept your Japanese citizenship. Second, I will assume that all of the assets that your father wants to gift to you are located in Japan. If these are both true, then I do not believe the US has the right to tax you at all on the gift (although you will have to report it to the government on Form 3520.
I am not licensed in Japan, so I cannot give you a legal opinion on that, but it is my reading that if you have not been a citizen or resident of Japan for 5 years, Japan does not have the right to tax that transfer. You should double check with an attorney licensed in Japan.
Dear Dan,
It would probably be best to find a local attorney or CPA who has experience in inheritance taxes.
The tax treaty that changed was the income tax treaty, not the estate & inheritance tax treaty, so be careful.
Thank you, Mr. Pollock. Your advice is very helpful. Rie
Mr. Pollock, my father-in-law transferred 100k to my wife's US bank account as a loan after we got married about 2-3 years ago. The local tax office in Japan called him this year asking if it was a gift, much of which is beyond any exemption and would be taxed at a very high rate (which we're not ready to accept or see paid- we'd rather reverse the transaction if possible and if needed). He told the tax office in Japan is was a loan. They seem to have accepted this explanation for now and want to know how/when we will be paying the money back. My father in law and wife are not taking this seriously. I told them that computers and tax offices do not simply forget these matters, and we need to deal with it now. My questions: 1) Do we need to be careful sending the money back to Japan so we don't incur US taxes on it? It is scary to imagine getting taxed twice at such rates.2) What is the maximum gift our father in law could gift each of us per year if he wanted to? 3) Can a loan with promissory note be a valid way to help us buy a home in the US, as long as we pay it back later? 4) What is the best way to generally avoid any taxes if we decide to recieve any gifts in the future?
Dear Anonymous of 7/22,
This sort of transaction has many implications. If it is gift it must be reported to the Japanese tax authority and also to the US treasury. There is no tax for the US unless you fail to file the Form 3520. See my article about the requirements here: http://willstrustsestates.blogspot.com/2013/06/receiving-gifts-or-inheritance-from.html
There are ways to structure this as a part gift/part loan that would be better for reporting and tax purposes. I would strongly suggest consulting with a tax professional to set up the paperwork.
Mr. Pollock,
My father, a Japan citizen/resident, died recently leaving a U S brokerage account, value about $250,000, in Hawaii. In accordance with the US Japan Estate Tax Treaty, is the situs of the account Japan or U S?
Dear Anonymous of October 19, 2015,
I'm sorry to hear about your loss. Unless there are facts that I am unaware of, most likely Japan will be the situs of the account for estate/inheritance tax purposes.
Hello,
My hubby is technically a dual citizen although he hasn't lived in Japan for over 30 years. My MIL is a Japanese National who receives US Social Security, royalty payments, and owns her own condo in Kichijoji (value $400k). She also has safety deposit boxes of paternal family heirlooms {jewelry} plus cash. I'd say the total value is around $700k. My hubby is her only child and both her and my FIL (who passed away in 1996) were only children. She has never worked a day in her life so the FIL was the true inherent/earner of all the assets. The Social Security she receives is solely survivor benefits paid in US dollars to a Japan bank account.
She's not well and most likely will pass within the next year. My hubby's company plans to send him for training (so he will get per diem and his pay will still come from Belmont, CA) for 6 months next year. We will be temporarily residing in Japan but will maintain our mortgage in the US and return to this home after his training.
You probably can garner what my questions will be...
#1 If she dies and refuses to gift anything, our we responsible for the inheritance taxes as non-citizens and hubby being the sole heir? If so, how much?
#2 Will hubby's training be considered as being "domiciled" in Japan even though his company will pay for the housing and we do have an US residence in tact?
#3 Are all assets "inheritance taxable" or just the real estate components? Since it's a condo, are we responsible for any value in the "leased land" the building sits on? What about possible "national treasures" as some of the jewelry has been handed down generations [hubby's ancestry is Samurai and we are unsure what items are actually in the safety deposit box - despite multiple attempts to inventory these items, MIL refuses to cooperate].?
#4 If we do decide to return to Japan one day to either run a business or if hubby transfers to Japan for his job, will these assets once again be taxable if we bring them back from the US? Is there a time limit we must adhere to before moving to avoid double taxation? Would it be better just to leave the assets in Japan and not bring them stateside?
#5 If we choose to rent her condo as a furnished vacation rental, will we avoid paying inheritance tax but instead pay an income tax based on non-resident status? How long after her death would we have to rent it for before the sale of the property would be considered first hand and not part of an inheritance?
#6 As you know, Japan doesn't issue death certificates - they just cross the name off the Koseki. If she dies while we are not in Japan, how difficult will it be to access the bank accounts? We may need to access funds to pay for airplane tickets to get to Japan to deal with all the business involving her death. [So you know, hubby is fluent in Japanese; however, he hasn't a clue when it comes to the nuances of Japanese business dealings]. Would we have to contact a Japan Embassy in the US for assistance in getting proof of her death and subsequent access to the accounts?
Dear Anonymous of 11/4/15,
Please be advised that you are asking many very specific questions. While I don't mind answering questions from time to time, I really think you need to hire a Japanese attorney to assist you with any of these items as I presume your mother in law is a Japanese national. It is her country of residence that primarily controls the choice of law.
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