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Adoption in Japan May Limit Taxes

| May 24, 2017 | Inheritance Tax |

Adoption can be used for different reasons in different countries, depending on the laws.

Japan has an inheritance tax but many Japanese have found a way to limit it through adoption, according to the Library of Congress in “Many Adoptions in Japan are Not About Raising Children.”

Because people have successfully found ways to limit the size of their estates, tax collectors often prefer to institute an inheritance tax instead of an estate tax.

Theoretically, by taxing what heirs receive, instead of the deceased’s estate, it is more difficult to find ways around the system. In the U.S., only a handful of states have adopted an inheritance tax and there is no such thing at the federal level.

Wealthy Japanese people will adopt an adult, often a grandchild or other relative, so that they have more heirs. Accordingly, every individual heir’s share of the estate is consequently smaller, which can lead to lowering the inheritance tax rate for the heirs or bring them under the threshold for the tax to apply at all.

To make this method of getting around the tax more difficult to use, the Japanese government has limited the number of adult adopted children who are counted for the purposes of inheritance taxation.

It doesn’t matter which nation it is, taxpayers will most likely be seeking ways to pay the smallest amount possible.