Estate planning, an essential part of any financial plan, can be complex—especially when foreign real estate and foreign laws are involved. Below are 8 essential facts you need to know to simplify your estate planning if you are a non-Japanese citizen living outside Japan, but own real estate in Japan. These comments apply only to your heirs who are non-Japanese citizens, not living in Japan at the time of your death.
Because of the complex issues and procedures involved, you should get advice from qualified professionals as early as possible. In Japan, shihoushoshi (司法書士), who are qualified legal professionals, can provide comprehensive advice about real estate-related inheritance matters. We are happy to introduce you to an English-speaking shihoushoshi.
A notarized will prepared by a shihoushoshi covering your Japanese assets can great simplify transfer procedures of your Japanese assets to your heirs and significantly shorten timing. The transfer of assets to your heirs, including real property registration, can take several weeks instead of many months. The shihoushoshi’s fees for preparing a notarized will can be JPY100,000-150,000, exclusive of accountants and notary publics’ fees, if any. Additional costs may be incurred for transfer/registration of other assets, executor’s fees, and the like. Shihoushoshi generally act as executors, providing a seamless service. (Without a notarized will, completion of asset transfer could take up to a year or more after all necessary documents have been collected. This would, of course, involve significantly more professional fees.)
You may also want to consider transferring your real property to a family member as a gift during your lifetime. These gifts are subject to a 3-4% acquisition tax based on the assessed value of the real property. You should be aware that gifts made within 3 years of your death will be taxed as part of your estate. Please check with a shihoushoshi about available tax exemptions.
In theory, only the laws of your country of citizenship will apply to the inheritance of your real estate in Japan. This is true even if you have a Japanese spouse. However, some countries, such as the U.S. and the U.K., refer inheritance matters involving real property back to the country where the real property is located (i.e., back to Japan). However, rest assured that your non-Japanese non-resident heirs can inherit and own real estate in Japan. In any event, Japanese laws will apply to the calculation and payment of inheritance and gift taxes.
Your heirs will be subject to an inheritance tax or gift tax on all of your Japanese assets. The inheritance tax is levied at progressive rates (up to 50%) on the assessed value of the property inherited minus funeral expenses and liabilities. Qualified professionals can provide you with advice about additional deductions and exemptions.
Your heirs will need to register the real property they receive by inheritance or as a gift. This registration gives public notice of the correct ownership status of the real estate. Your heirs will need to pay a registration tax of 0.4% of the assessed value for real estate acquired by inheritance and 2% for real estate received as a gift. Registration of real property is typically done by a Shihoushoshi.
Your heirs will need to file inheritance tax returns within 10 months after your death. In principle, the inheritance tax is paid in one lump sum in cash by the filing due date; however, deferrals of up to 15 years may be available under certain circumstances.
Although Japan generally recognizes foreign wills, the general practice increasingly is to have 2 separate wills—a Japanese notarized will that covers assets in Japan and a second will valid in your home country that covers your assets located outside Japan.