Discussing Inheritance

Family planning in Japan

This year as usual my wife and I drove to her parents’ place on December 31st (they live just down the road about twenty minutes away), had dinner together, and stayed the night.

The next morning, after our usual ozoni breakfast, we did something different.

For the first time ever, we talked about their finances, what they wanted done with their estates, and read through their will, bank statements, and insurance policies together.

The generation that built Japan

My in-laws were lucky in the timing of their lives. In their 90s now, they lived through Japan’s economic miracle. My father in law worked for a big company and retired with a paid-off home, a decent pension from nenkin, a retirement bonus, a supplementary private pension (400,000 yen a year until death). His wife has kokumin nenkin from being a dependent spouse.

Their pension income is enough for their needs, and they have enough savings to deal with anything that might come their way. In addition, their children are also around and would help them out if necessary.

A very Japanese mix of assets

The will was not much of a surprise. They will basically leave everything to my wife and her brother, and our children.

Their assets include a house, the contents and the land it is on, a parcel of land in Iwate in a besso community (largely worthless), some cash savings in various bank accounts, and a surprising number of life insurance policies.

They also took out a private pension in my wife’s name that will pay out one million yen a year for ten years after she reaches age 65. They asked that she split this with her children on a 40-20-20-20 basis.

The land is not worth much because it is too close to a cliff. When the house was originally built 40 years ago that was fine, but under current building regulations it is no longer possible to build on the plot.

Because of this we renovated the existing house a few years ago (instead of rebuilding it), splitting the cost 60-40 between us and my wife’s parents). She will inherit the house at some point and we are planning to live there. After a 25m yen renovation it is pretty nice now.

Insurance

Mind-bogglingly, my in-laws have life insurance policies that will pay out a total of over 25m yen. This is largely in the form of whole life policies that have matured, so they are no longer paying into them.

The beneficiaries are a mixture of my wife and her children.

Apparently this is a consequence of my mother in law having a friend who sold insurance, so they ended up taking out almost a dozen different policies.

Inheritance tax

Assuming my father in law passes away first (he is older and in worse health than his wife), there would be three heirs (my mother in law, my wife, and her brother) so the tax-free allowance for the estate would be 48m yen (30 million base tax-free allowance, plus 6m per designated heir).

This is comfortably larger than the entire estate (home, land, cash, possessions, etc.) so no tax would be due and there would be no need to make a declaration to the tax office.

In fact only 9% of estates pay inheritance tax in Japan, and the median taxpayer in those estates is paying just over 3%. For more info on this topic, read our guide to inheritance tax in Japan.

The takeaway

I think it is really important to do three things for your estate planning, and it shouldn’t take much longer than a couple of days to do them.

1. Talk to your family about your wishes and plans
2. Make a will (you may need one in Japan and one in your country of nationality)
3. Make a list of assets so that your family can find them easily

Talk to your family

Talking to your family about your wishes is similar to talking to your spouse about your finances.

I recommend setting aside some time, going outside of your normal environment (to a nice coffee shop or ryokan perhaps), and doing so in a relaxed and fun manner.

Make a will

In Japan there are various options when it comes to writing a will, from handwriting it yourself to doing so under the guidance of a professional, to getting a will made for you.

This is a simple summary of options: https://sumikawa.net/legal-services/leaving-a-will-in-japan-12/

In principle, non-Japanese residents have their estates handled under their ‘home’ country law.

However, many countries (including the UK) bounce this back again and say that non-resident citizens have their estates handled by their country of residence law.

It might be worth checking what your country (or state, in the case of the US) has to say about this.

Make a list of assets

Making a list of assets is probably the easiest part.

You just need a simple list that shows the existence of the assets.

For banks and financial institutions, the bank and branch name and account number is enough. No need for passwords or pin numbers.

For insurance policies, the company name and policy number is enough.

Don’t risk wrecking your family’s relationships

Not talking to your family and not leaving a clear will can destroy your family’s relationships with each other.

I have seen this second hand last year with a friend of my wife’s, who is no longer talking to their sibling while both sides have employed lawyers to argue about their inheritance.

Completely avoidable situation.

All told, getting everything ready shouldn’t take much more than a few days, and could save your family and loved ones a lifetime of stress.