Inheritance to Grandchildren

[cocacola]

I recently received an inheritance from one of my parents.

One of the stipulations of the inheritance is that a portion of it go to both my kids, individually. This was not written in the Will, but it was verbally requested. I received the entire inheritance (Japan inheritance tax also paid).

Each of the children have a bank account that my wife and I had created for them (under the childs' names) a few years ago. I have begun to transfer 1.1 million yen into each child's account this year, staying below the gift tax threshold.

I was hoping to start an investment account through each child's bank account, but I noticed for the broker that can easily connect to the child's account (I believe it is au?), there is a rule that the investor must be 18 or older.

Has anyone made investments through their under-18 child's bank account before? I wonder how hard and fast this rule is...

Currently, the brunt of the inheritance is invested (through my personal investment account) into the eMaxis Slim All Country, in a taxable account. My plan is to sell 2.2 million of it, each year, in order to give to each child.

However, given inflation, I'd rather not keep that transferred money as cash, which is why I was hoping to invest it through the children's accounts.

If it's not recommended to try to invest the children's funds "under the radar", other suggestions to grow the children's inheritance are welcomed.

Thank you

[RetireJapan]

You can open a child investment account through Rakuten (and likely other brokers) as long as a parent or legal guardian also has an account.

If you had Junior NISA accounts those came with taxable child investment accounts too.

[sutebayashi]

If it's not recommended to try to invest the children's funds "under the radar", other suggestions to grow the children's inheritance are welcomed.

Your plan is similar to my plan… I haven’t got an inheritance yet but know it will come one day, hopefully not soon. But due to the amount in question, I intend to suggest skipping me out and have the grandparent gift my kids up to the tax free gift free threshold each year, transfer it to Japan (*) and then from their bank accounts shift it into their individual securities accounts, and I’ll invest it on their behalf.

This is a perfectly legitimate way to go, I gather.

In your case, the tax people and you might have a disagreement about whether you inherited it or your kids did, but if the kids are only receiving under the tax free threshold in gifts each year, then that should be a moot point.

The only bummer is you’ll have to realize any profits each year as you sell to free up the funds to present to the kids. But that’s probably the best you can do I think.
EDIT: hmm, or could there be a way to transfer the holdings from your account to theirs… something like an 移管 transaction perhaps…

(*) I am wondering if to save transaction costs I could receive the funds on behalf of my kids and then fan the funds out to their accounts once the money is in Japan, rather than having grandparent send multiple cross border payments. I mean, I am sure I could do this, but if the tax people wanted to know I’d hope my answer would stand up to scrutiny.

[cocacola]

If you had Junior NISA accounts those came with taxable child investment accounts too.

Oh! We do have Junior NISAs for the kids. I checked their bank accounts online, but couldn't see anything relating to child investment accounts... I will check again. Thanks!

[RetireJapan]

Oh! We do have Junior NISAs for the kids. I checked their bank accounts online, but couldn't see anything relating to child investment accounts... I will check again. Thanks!

On Rakuten you can switch between the junior NISA and junior taxable accounts with this toggle:

[cocacola]

The only bummer is you’ll have to realize any profits each year as you sell to free up the funds to present to the kids. But that’s probably the best you can do I think.
EDIT: hmm, or could there be a way to transfer the holdings from your account to theirs… something like an 移管 transaction perhaps…

Yes, that's exactly what I am dealing with right now. But I sort of see the gains as "free money", as the inheritance was never intended to be invested. Yes, I take a 20% haircut from the gains upon sale, but at least there is some growth there.

(*) I am wondering if to save transaction costs I could receive the funds on behalf of my kids and then fan the funds out to their accounts once the money is in Japan, rather than having grandparent send multiple cross border payments. I mean, I am sure I could do this, but if the tax people wanted to know I’d hope my answer would stand up to scrutiny.

I think this is a good idea, if you can receive the proposed inheritance early enough. When my father passed, I had to pay a jackload of Japan-side inheritance tax. However, there was an investment he had made about 5-years prior to his passing that had me as the named benefactor. There is a stipulation with inheritance tax where, if you were named a benefactor, or received a sum of money 4-years BEFORE their passing, it won't be considered "inheritance", thus, it will not fall under Japan inheritance tax. This might be something for you to consider, and perhaps plan to have the difficult conversation with your loved-ones. The earlier, the better...

When I learned about the above (albeit, too late), I was thinking: if my father had gifted this money to me years ago in order to purchase a property here, it would have been all good, no inheritance tax. I believe (and I hope to be corrected if wrong) that if you receive a large sum of funds from your parents in order to pay for real estate in Japan, any gift tax will be waived. I have a good friend who received over $200,000 from his mother in order to purchase a home here. The security department of his Japanese bank called him and wanted to confirm the purpose of the large fund transfer. He told the security person about the property purchase and the funds were released into his account, without issue.

Perhaps something to research!

Edit: I should add that he still has the money in his account, a few years after receiving it, and has yet to find a property to purchase. I guess the authorities can't force you to make a purchase!

Edit2: I found this link in another thread on this forum. This forum is a seriously excellent resource.

[ClearAsMud]

... Edit: I should add that he still has the money in his account, a few years after receiving it, and has yet to find a property to purchase. I guess the authorities can't force you to make a purchase!

Edit2: I found this link in another thread on this forum. This forum is a seriously excellent resource.

They can't physically make you do it, but there are conditions in place to enforce the timely purchase of a home using the special tax exemption available to the children/grandchildren of the donor of a gift intended for that purpose.

One of the conditions for claiming the exemption (and there are a number that must be kept in mind) is that the entire amount of the gift must be put toward the purchase of a home by March 31 of the year following the year the gift was made. See condition number 6 for recipients on this NTA page (the page, which is the same one linked to in your post, hasn't been updated recently so it shows the exemption as expiring in December 2023, but at the end of the year a three-year extension to December 2026 was approved). Moreover, a gift-tax return must be filed to claim the exemption--even if no tax is due--during the regular gift-tax filing period for the year of the gift (i.e. from February 1 to March 15 of the following year).

Conditions have changed over the years, so it's worth checking out those in effect at the time of the gift, but it's worth emphasizing that if the gift isn't used to buy a home before March 31 of the year following the gift OR if a gift-tax return isn' filed the year after the gift was received, eligibility for tax-free treatment may be questioned.

[edited to focus on the specific conditions]