Children's Accounts - Deposits and Gift Tax

[Tsumitate Wrestler]

There is a strong narrative on Reddit finance and other parts of the expat web, that seems to state that deposits made into minors accounts may be liable for estate tax, even if they are gift well before the passing of said relative and in an annual amount under 1.1 million.

This revolves around whether a gift can said to be "effective" and whether the receiver acknowledges the gift.

Some guides even speak to a written agreement between a minor and gift-giver.

What's the bottom line with all this?

(My Mother-in-law has gifted some of our kids, directly into their individual accounts. This money has been invested into junior Nisa accounts and taxable accounts as well as cash savings)

[RetireJapan]

Very interesting question, and I'm curious to hear the answer. I suspect it depends on the relationship between the giver and the recipient, the timescale, and whether the tax office would even notice???

[sutebayashi]

Who is the gifter, is one factor, per my understanding from an inheritance tax book I borrowed from my library.

If a grandparent gives a minor grandchild money, my understanding is it’s all clear (assuming the parent generation in the middle is still alive) so long as the recipient is under the annual gift limit threshold.

This notion of the recipient having to acknowledge a gift seems dubious to me. That would cast doubt over money put into the J-NISA accounts, which were limited to fall under the annual gift tax threshold. My kids don’t have a clue about the cash we put in their J-NISAs (gifted by me and I won’t be dying for decades)

I’d be willing to wager I’m not the only one who has seen the elder generation pass on wads of 10,000 bills to the next generation? By that alone it’s easy to bypass the annual gift tax limit, so I struggle to imagine the tax agency in practice devoting many resources to trying to bust people who are essentially abiding by the gift tax letter of the law.

(The whole tax thing seems daft to me, unless the gift tax thresholds are intended to incentivize people to have as many kids as possible?!)

Edit: on the other hand there is the concept of “meigi-yokin”, but that can in practice be controlled by the fake giver. If the money is locked away in long term investments and not used by the original giver, I think it unlikely to be regarded as a meigi-yokin account though

[Tsumitate Wrestler]

Who is the gifter, is one factor, per my understanding from an inheritance tax book I borrowed from my library.

If a grandparent gives a minor grandchild money, my understanding is it’s all clear (assuming the parent generation in the middle is still alive) so long as the recipient is under the annual gift limit threshold.

This notion of the recipient having to acknowledge a gift seems dubious to me. That would cast doubt over money put into the J-NISA accounts, which were limited to fall under the annual gift tax threshold. My kids don’t have a clue about the cash we put in their J-NISAs (gifted by me and I won’t be dying for decades)

I’d be willing to wager I’m not the only one who has seen the elder generation pass on wads of 10,000 bills to the next generation? By that alone it’s easy to bypass the annual gift tax limit, so I struggle to imagine the tax agency in practice devoting many resources to trying to bust people who are essentially abiding by the gift tax letter of the law.

(The whole tax thing seems daft to me, unless the gift tax thresholds are intended to incentivize people to have as many kids as possible?!)

The tax experts argue that it is not that simple, and proving if the gift was effective is not straightforward.

The claims are:

A. It is not uncommon for a J-NISA investor to have to pay tax upon maturity after the funds are released to them or after the gifting relative passess away, upon review by the NTA.

B. The NTA views 1 million from Grandma a year in kidos bank account as basically inheritance tax dodging. {Example}

C. The Junior Nisa was always considered to be a liability due to B and C, and THAT is why it was axed.

.......................

I would not even know how to go about confirming A, B and C. However, this seems to be a common opinion in the tax world. Stark et al. on reddit seem to take this position as read.

I feel less certain, but not confident either way.

[sutebayashi]

For what it’s worth I asked a question to ChatGPT and then had it give me the answer in English:

“If you gave money to your child to invest in J-NISA and the gift exceeds the annual gift tax exemption limit (usually 1.1 million yen), then the excess amount may be subject to gift tax. Additionally, if the child does not use the gifted money for investment or if the donor continues to manage the gifted money, the actual nature of the gift may be questioned, and gift tax may be applied. It is advisable to consult a professional for further guidance on the application of gift tax.”

This being said by ChatGPT makes it likely that this is a pretty standard understanding.

There might be special case exceptions, but a gift from a grandparent to a grandchild where the statutory heir in between is still alive means the gift to the grandchild is out of scope for inheritance tax per my understanding, so long as the grandparent or parent is not effectively using the money for their own purposes.

If this is not in fact the case then there is no gift allowance after all!

And J-NISA would be a tax trap!

This would be an outrage, if true.

At least to my eyes there is quite a difference between a plain meigi-yokin and a J-NISA, but then they did loosen up the rules around taking funds out of JNiSA… I continue to play by the rules myself… the money in the jnisas shall pay for their university ed or similar. I won’t pay for that stuff until the kid shows me their empty securities account and receipts for what they paid for

[Deep Blue]

There is a strong narrative on Reddit finance and other parts of the expat web, that seems to state that deposits made into minors accounts may be liable for estate tax, even if they are gift well before the passing of said relative and in an annual amount under 1.1 million.

This revolves around whether a gift can said to be "effective" and whether the receiver acknowledges the gift.

Some guides even speak to a written agreement between a minor and gift-giver.

What's the bottom line with all this?

(My Mother-in-law has gifted some of our kids, directly into their individual accounts. This money has been invested into junior Nisa accounts and taxable accounts as well as cash savings)

This sounds like utter bollocks. The law is very clear, 1.1 million can be gifted tax free every year. I’ve been doing this for my children with no issues.

I’m not on Reddit or other parts of the “expat web” but I would caution you against believing every thing you read on the internet. The offical guidance is very clear.

[Tsumitate Wrestler]

There is a strong narrative on Reddit finance and other parts of the expat web, that seems to state that deposits made into minors accounts may be liable for estate tax, even if they are gift well before the passing of said relative and in an annual amount under 1.1 million.

This revolves around whether a gift can said to be "effective" and whether the receiver acknowledges the gift.

Some guides even speak to a written agreement between a minor and gift-giver.

What's the bottom line with all this?

(My Mother-in-law has gifted some of our kids, directly into their individual accounts. This money has been invested into junior Nisa accounts and taxable accounts as well as cash savings)

This sounds like utter bollocks. The law is very clear, 1.1 million can be gifted tax free every year. I’ve been doing this for my children with no issues.

I’m not on Reddit or other parts of the “expat web” but I would caution you against believing every thing you read on the internet. The offical guidance is very clear.

Putting on my contrarian hat, but remember I want you to be correct.

I need to push back against this comment. The opinions are posted are held by registered tax experts, and not amateurs.

The test for for a legitimate gift is clearly spelled out by the NTA. There is a clear issue here.

For what it’s worth I asked a question to ChatGPT and then had it give me the answer in English:

Chat-GPT is a very dangerous resource to use for tax questions, especially bilingual ones. Remember, it's often using data from forums like this one (and Reddit) as an uncited source.

A classis Ouroboros problem.

[Deep Blue]

The test for for a legitimate gift is clearly spelled out by the NTA.

So what exactly are you asking?

[Tsumitate Wrestler]

The test for for a legitimate gift is clearly spelled out by the NTA.

So what exactly are you asking?

What's the bottom line with all this?

I am asking for clarification and experience. I have researched the issue in English, and Japanese (to the best of my abilities).

There is a hugely confusing mess of hedging language and if/buts, as can be expected by any licensed expert giving general tax advice for free.

From what I can understand the issue boils down to (1) A child often cannot meet the test for receiving a gift, (2) the NTA often views the practice of gifting inheritance early, {say under 1.1 million yearly} as tax avoidance.

I am looking for discussion and experience on a nuanced issue.

[Deep Blue]

So it’s not clearly laid out by the NTA then? There is nothing on the English language page hinting of these sorts of issues?

https://www.nta.go.jp/english/taxes/others/02/15002.htm

If this is so complicated and nuanced I’d try asking the NTA directly.

https://www.nta.go.jp/english/contact/moreinformation/