All in the family: Keeping inheritances is a tricky business

August 23rd, 2011 by Philip Brasor & Masako Tsubuku

A recent story reported by all the major media highlights a peculiar aspect of current household economics in Japan. In March, a home in Fukuoka City was broken into and ¥160 million in cash was stolen. One of the people who lived there, a 26-year-old woman, reported the robbery to the police, who have yet to catch the thief.

Wills are almost unheard of in Japan, which may be the problem

During their investigation the police wondered why the woman had such a huge amount of cash in her home. The usual reason is that there is almost no place to park that money these days. With bank interest rates remaining at zero indefinitely, more and more families just sock their money away in the mattress (or, in the Japanese idiom, the wardrobe). Mutual funds and other investment opportunities are available in Japan, but the average Japanese person tends to be averse to anything with risk attached.

In the case of the burgled party, the reasons were a little different. Investigators eventually learned that the ¥160 million was part of a ¥1.45 billion inheritance that the woman and her two older siblings received from their mother, who died in 2008 at the age of 64. The inheritance was made up of both cash and assets, including real estate, and had they properly reported it the three would have been liable for ¥544 million in inheritance taxes. As it stands now they will have to pay more, what with fines and penalties added on. In their case it’s even worse since they may be paying tax on ¥160 million they no longer have.

The sense one gets from the news reports is that the authorities would not have found out about the money if the robbery hadn’t taken place and the woman hadn’t reported it. Though the average person doesn’t have easy access to money laundering schemes, cash is easier to hide than investments. Every so often a worker who is tearing down a derelict house or someone who handles refuse comes across a huge stash of moldering cash that was likely hidden away by its owner without anyone knowing, including potential heirs. When that person died, the cash went out with the rest of the garbage.

Assets are more difficult to hide, but in the case of real estate it’s still possible. If the heirs don’t change the title of the property and it remains in the name of the deceased, the tax authorities may not find out. Obviously, the heirs can’t sell the property unless they assume ownership, but they can still collect income in the form of rent as long as they continue paying property and income taxes. We’re not suggesting people break the law. On the contrary, one of the reasons the economy is in such bad shape is that people are not spending their money or otherwise circulating it. For people on fixed incomes or with unstable employment situations, hoarding cash may be understandable, but in many of these inheritance cases it amounts to just plain possessiveness.

Part of the problem is that inheritance shares are stipulated in the law, which means very few people draw up wills. Without a will there is no registered documentary proof of who ends up getting how much. In any event, Japan’s inheritance tax rates are not as high as many people think they are. According to national tax authorities in 2009, only 4.2 percent of all legacies were tapped for any inheritance taxes, and those that were taxed only ended up paying on average 11.6 percent.

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