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The Inheritance Tax and Adoptions in Japan, Elder Law Attorney, Woodstock GA


In the U.S., almost all adoptions are for the purpose of raising a child. That is not the case in Japan.

From a tax collector’s perspective, the estate tax can be a very inefficient way to raise money and limit dynastic wealth. People have successfully found all sorts of ways to limit the size of their estates, while still keeping their wealth in their families.

One potential way around this for tax collectors is 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.

Japan, on the other hand, does use an inheritance tax. Nevertheless, many Japanese have found a way to limit it through adoption, as the Library of Congress recently explained in “Many Adoptions in Japan are Not About Raising Children.”

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.

One thing this shows, is that it does not matter how governments decide to tax people and their estates. People will look for and find ways to limit their tax liabilities and to keep their wealth in their families.

Reference: Library of Congress (April 5, 2017) “Many Adoptions in Japan are Not About Raising Children.”

 

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