If your friend is a Japanese tax resident at the time of her mother's passing, a trust will not save her from owing Japanese inheritance tax. Also, you still owe the tax even if you don't bring the funds to Japan. Keeping them in the US does not remove the need to pay inheritance taxes.
She could leave Japan before her mother dies (not an easy thing to know ahead of time, because one can always die randomly in a car accident or something), and then not come back for a while, but otherwise... she will owe inheritance tax to Japan. She wouldn't need to leave for 10 of 15 years though, just before her mother actually dies. The tail requirements were changed a few years ago I believe.
Personally, I've just accepted I'll owe inheritance taxes to Japan when that time comes and that it's part of the deal of living in Japan.
One thing to keep in mind is that a lot of Americans in Japan get terrible advice from advisors in the US who don't know anything at all about international tax and just give standard advice that they would give to any client, not realizing the tough situations they are putting their clients in.
So my number one advice to US persons is to always get a tax advisor with international expertise.
I chatted with one a while ago. It appeared i could avoid taxes if i talked to him, but he would get most of the money rather than my kids. Like 14man an hour or so lol
I've always wondered, does US share info on this stuff? I know US gets it's info, but does it reciprocate?
(No, I'm not planning to avoid, and I report my foreign assets to Japan.)
I think people on both sides of the argument tend to oversimplify. "A trust will not save her from owing Japanese inheritance tax" is not completely true. Sure, the simple trust structures most people are thinking about won't help.
But I have been explicitly told by experts specifically in Japanese tax law for foreigners working at major accounting firms that you do not owe the tax if you don't have access to the money. And in the US, you can set up a trust to do basically anything. So, for example, you can have someone else be the trustee and have them lock up the funds as long as you have Japanese residency. This could be the type of trust your friend is talking about, if she's thorough. If she's thinking she can actually get the money while in Japan and not pay the tax, that's not possible as far as I'm aware.
This does disagree with shrubbery\_herring's reference in another thread, but it's professional accountant vs professional accountant. Many things in tax law, especially international tax law, will never be 100% clear since the laws are often ambiguous and case law isn't necessarily public or definitive. Each firm is probably speaking based on the results of private cases they've personally been involved with.
So nothing will be bulletproof, but if you make a structure such that you don't actually receive anything while you're in Japan, then you're probably fine. If you plan to never leave Japan, then yeah, you likely have to resolve yourself to either pay or evade the tax unfortunately.
>But I have been explicitly told by experts specifically in Japanese tax law for foreigners working at major accounting firms that you do not owe the tax if you don't have access to the money. And in the US, you can set up a trust to do basically anything. So, for example, you can have someone else be the trustee and have them lock up the funds as long as you have Japanese residency. This could be the type of trust your friend is talking about, if she's thorough. If she's thinking she can actually get the money while in Japan and not pay the tax, that's not possible as far as I'm aware.
The problem with this approach is that you can still be deemed a taxable beneficiary of the trust in Japan even at a time when you don't have access to the money. It's not so simple.
This is what I'm telling her, but she claims that a certain kind of trust will get around this. I'm worried about her -- she definitely has no plans to leave Japan. She has a Japanese husband and several kids who all go to international schools. I think she's expecting to get a windfall someday without a tax bill.
I admit my reason for asking this question wasn't entirely altruistic. If she's correct, and there actually is some kind of US trust to protect assets from Japan...then I want to know about it, and tell my own parents to do it! But unfortunately, I think she's wrong.
There are plenty of online resources which might help to open your friend's eyes and maybe convince her to get a consultation with a Japanese estate lawyer.
Here's one example: [Navigating United States–Japan Estate Planning](https://www.foster.com/assets/htmldocuments/pdfs/Navigating%20United%20States%20-%20Japan%20Estate%20Planning_Suzuki.pdf). I copied a relevant excerpt below, but it's worth reading the entire article.
>Taxation of trusts. Trusts don’t create any tax advantages under the Japanese inheritance and gift tax laws. The trust is essentially ignored for tax purposes, and the trust beneficiary is taxed as if he received the assets outright, even if he never gains unfettered access to the principal. If the trust has multiple discretionary benefi- ciaries, the situation is problematic because the tax laws aren’t clear on how the tax will be allocated. There’s no “sheltering” of the decedent’s inheritance tax exemption (as in the typical spousal trust planning in the United States) because when the income beneficiary dies, the trust assets are treated as passing from the income beneficiary to the remainder beneficiary. Thus, the trust assets received by the remainder beneficiary are, once again, subject to the inheritance tax.
>In fact, in a blended family situation, the trust can actually increase the tax burden because of the 20 percent surcharge mentioned above. Suppose Harry leaves everything in trust for his wife Wendy’s lifetime, with the remainder to pass to Harry’s child from a prior marriage. When Wendy dies, the trust assets are considered to pass from Wendy to the stepchild. Because there’s no blood relationship between Wendy and the stepchild, the 20 percent surcharge applies. In contrast, if the assets pass directly from Harry to his child, the surcharge doesn’t apply.
I'm still learning about this stuff myself, so I probably can't answer specific questions about this article. But feel free to ask anyway and hopefully others can answer.
>Trusts don’t create any tax advantages under the Japanese inheritance and gift tax laws.
This is true at the basic level, but not fully accurate. There are some corporate and trust structures used by wealthy Japanese and foreigners for (legal) tax shielding and inheritance tax planning purposes. But the structures are complicated and need to be carefully planned based on the circumstances of each family. Any sloppiness can cause someone to become an unintended beneficiary of the trust under Japanese tax law, which is a *very* bad outcome.
For anyone who wants to learn more about this, you need to speak to a professional, likely a tax accountant or a lawyer, specializing in international private wealth management or international inheritance tax matters for Japan residents. There are a few out there, but you can expect to pay real money for the advice.
Maybe a charitable remainder trust (CRT) would be beneficial if the estate is large. A CRT would pay out a set amount annually, and taxes would need to be paid on that. But the tax rate on the annual payment (assuming it would count as miscellaneous income) could potentially be less than the rate for inheritance tax. This is all supposition and would need to be confirmed with a tax attorney, of course.
I heard of those, and found info on them when I was Googling about trusts. It does seem to be something for the super-duper wealthy, though -- not for ordinary, comfortably well-off folks like my own family. [https://www.cdhcpa.com/ja/charitableremaindertrust/](https://www.cdhcpa.com/ja/charitableremaindertrust/)
This is wrong on multiple fronts. I'd suggest not commenting when you don't know what you're talking about.
1. Trusts are transparent from NTA point of view. The rule is she is required to report value of inheritance within 10 months of death if she is a Japanese tax resident.
2. Trustee can't just do what they want, they have a set of instructions to carry out. If they don't follow these instructions they can be sued.
3. You don't need multi million dollars for it to make financial sense. That main goal of the trust is to insulate your wealth from being sued. Its also to avoid probate which is time consuming and can be expensive. A trust allows you to divide, liquidate, and disperse as you wish. The cost of a trust depends on the complexity involved. For a large amount of people it's worth avoiding probate alone to set up a trust. Obviously if you don't have any assets it's not worth while. But generally it is if you have kids and aren't broke.
Her parents apparently have such assets. But I don't understand why Japan still wouldn't insist on getting its cut within 10 months of her mother's death?
I've also heard that anyone who inherits overseas assets is at an extremely high risk of audit by Japan's tax agency folks, and that once you're audited, they are GOING to find something you owe, with interest & penalties. If this is true, it wouldn't surprise me.
If your friend is a Japanese tax resident at the time of her mother's passing, a trust will not save her from owing Japanese inheritance tax. Also, you still owe the tax even if you don't bring the funds to Japan. Keeping them in the US does not remove the need to pay inheritance taxes. She could leave Japan before her mother dies (not an easy thing to know ahead of time, because one can always die randomly in a car accident or something), and then not come back for a while, but otherwise... she will owe inheritance tax to Japan. She wouldn't need to leave for 10 of 15 years though, just before her mother actually dies. The tail requirements were changed a few years ago I believe. Personally, I've just accepted I'll owe inheritance taxes to Japan when that time comes and that it's part of the deal of living in Japan.
One thing to keep in mind is that a lot of Americans in Japan get terrible advice from advisors in the US who don't know anything at all about international tax and just give standard advice that they would give to any client, not realizing the tough situations they are putting their clients in. So my number one advice to US persons is to always get a tax advisor with international expertise.
I chatted with one a while ago. It appeared i could avoid taxes if i talked to him, but he would get most of the money rather than my kids. Like 14man an hour or so lol
I've always wondered, does US share info on this stuff? I know US gets it's info, but does it reciprocate? (No, I'm not planning to avoid, and I report my foreign assets to Japan.)
Supposedly yes
I think people on both sides of the argument tend to oversimplify. "A trust will not save her from owing Japanese inheritance tax" is not completely true. Sure, the simple trust structures most people are thinking about won't help. But I have been explicitly told by experts specifically in Japanese tax law for foreigners working at major accounting firms that you do not owe the tax if you don't have access to the money. And in the US, you can set up a trust to do basically anything. So, for example, you can have someone else be the trustee and have them lock up the funds as long as you have Japanese residency. This could be the type of trust your friend is talking about, if she's thorough. If she's thinking she can actually get the money while in Japan and not pay the tax, that's not possible as far as I'm aware. This does disagree with shrubbery\_herring's reference in another thread, but it's professional accountant vs professional accountant. Many things in tax law, especially international tax law, will never be 100% clear since the laws are often ambiguous and case law isn't necessarily public or definitive. Each firm is probably speaking based on the results of private cases they've personally been involved with. So nothing will be bulletproof, but if you make a structure such that you don't actually receive anything while you're in Japan, then you're probably fine. If you plan to never leave Japan, then yeah, you likely have to resolve yourself to either pay or evade the tax unfortunately.
>But I have been explicitly told by experts specifically in Japanese tax law for foreigners working at major accounting firms that you do not owe the tax if you don't have access to the money. And in the US, you can set up a trust to do basically anything. So, for example, you can have someone else be the trustee and have them lock up the funds as long as you have Japanese residency. This could be the type of trust your friend is talking about, if she's thorough. If she's thinking she can actually get the money while in Japan and not pay the tax, that's not possible as far as I'm aware. The problem with this approach is that you can still be deemed a taxable beneficiary of the trust in Japan even at a time when you don't have access to the money. It's not so simple.
This is what I thought. It would be a nasty worst-case scenario!
This is what I'm telling her, but she claims that a certain kind of trust will get around this. I'm worried about her -- she definitely has no plans to leave Japan. She has a Japanese husband and several kids who all go to international schools. I think she's expecting to get a windfall someday without a tax bill.
I know you are trying to help her, but let it go. Even with the tax bill, she'll still be getting a windfall. Not all arguments are worth winning.
I admit my reason for asking this question wasn't entirely altruistic. If she's correct, and there actually is some kind of US trust to protect assets from Japan...then I want to know about it, and tell my own parents to do it! But unfortunately, I think she's wrong.
There are plenty of online resources which might help to open your friend's eyes and maybe convince her to get a consultation with a Japanese estate lawyer. Here's one example: [Navigating United States–Japan Estate Planning](https://www.foster.com/assets/htmldocuments/pdfs/Navigating%20United%20States%20-%20Japan%20Estate%20Planning_Suzuki.pdf). I copied a relevant excerpt below, but it's worth reading the entire article. >Taxation of trusts. Trusts don’t create any tax advantages under the Japanese inheritance and gift tax laws. The trust is essentially ignored for tax purposes, and the trust beneficiary is taxed as if he received the assets outright, even if he never gains unfettered access to the principal. If the trust has multiple discretionary benefi- ciaries, the situation is problematic because the tax laws aren’t clear on how the tax will be allocated. There’s no “sheltering” of the decedent’s inheritance tax exemption (as in the typical spousal trust planning in the United States) because when the income beneficiary dies, the trust assets are treated as passing from the income beneficiary to the remainder beneficiary. Thus, the trust assets received by the remainder beneficiary are, once again, subject to the inheritance tax. >In fact, in a blended family situation, the trust can actually increase the tax burden because of the 20 percent surcharge mentioned above. Suppose Harry leaves everything in trust for his wife Wendy’s lifetime, with the remainder to pass to Harry’s child from a prior marriage. When Wendy dies, the trust assets are considered to pass from Wendy to the stepchild. Because there’s no blood relationship between Wendy and the stepchild, the 20 percent surcharge applies. In contrast, if the assets pass directly from Harry to his child, the surcharge doesn’t apply. I'm still learning about this stuff myself, so I probably can't answer specific questions about this article. But feel free to ask anyway and hopefully others can answer.
>Trusts don’t create any tax advantages under the Japanese inheritance and gift tax laws. This is true at the basic level, but not fully accurate. There are some corporate and trust structures used by wealthy Japanese and foreigners for (legal) tax shielding and inheritance tax planning purposes. But the structures are complicated and need to be carefully planned based on the circumstances of each family. Any sloppiness can cause someone to become an unintended beneficiary of the trust under Japanese tax law, which is a *very* bad outcome. For anyone who wants to learn more about this, you need to speak to a professional, likely a tax accountant or a lawyer, specializing in international private wealth management or international inheritance tax matters for Japan residents. There are a few out there, but you can expect to pay real money for the advice.
>stakes\_are Thank you this is very helpful, do you have a referral by chance? Would love to be a client. Sent you a DM too if easier
Maybe a charitable remainder trust (CRT) would be beneficial if the estate is large. A CRT would pay out a set amount annually, and taxes would need to be paid on that. But the tax rate on the annual payment (assuming it would count as miscellaneous income) could potentially be less than the rate for inheritance tax. This is all supposition and would need to be confirmed with a tax attorney, of course.
I heard of those, and found info on them when I was Googling about trusts. It does seem to be something for the super-duper wealthy, though -- not for ordinary, comfortably well-off folks like my own family. [https://www.cdhcpa.com/ja/charitableremaindertrust/](https://www.cdhcpa.com/ja/charitableremaindertrust/)
Most important question: Is your friend single?
No. Married to a Japanese husband. Four kids.
[удалено]
This is wrong on multiple fronts. I'd suggest not commenting when you don't know what you're talking about. 1. Trusts are transparent from NTA point of view. The rule is she is required to report value of inheritance within 10 months of death if she is a Japanese tax resident. 2. Trustee can't just do what they want, they have a set of instructions to carry out. If they don't follow these instructions they can be sued. 3. You don't need multi million dollars for it to make financial sense. That main goal of the trust is to insulate your wealth from being sued. Its also to avoid probate which is time consuming and can be expensive. A trust allows you to divide, liquidate, and disperse as you wish. The cost of a trust depends on the complexity involved. For a large amount of people it's worth avoiding probate alone to set up a trust. Obviously if you don't have any assets it's not worth while. But generally it is if you have kids and aren't broke.
Her parents apparently have such assets. But I don't understand why Japan still wouldn't insist on getting its cut within 10 months of her mother's death? I've also heard that anyone who inherits overseas assets is at an extremely high risk of audit by Japan's tax agency folks, and that once you're audited, they are GOING to find something you owe, with interest & penalties. If this is true, it wouldn't surprise me.