A couple of inheritance tax questions

[sutebayashi]

I’ve got another somewhat implausible scenario, but thought it interesting as a thought experiment…

Let’s say the decedent had invested in some volatile stock, but coincidently then immediately after dropped dead.

The heir(s) learns of the death and inheritance things kick into gear. The heir has 10 months to report any inheritance tax.

In the next months, the executor of the decedent’s estate is following the procedures, but before the heir can get the inheritance, in the mean time, the stock that had been invested in crashes, let’s say it goes to zero.

As per my understanding, the inheritance tax rules would have the heir on the hook for inheritance tax on the taxable amount of the stock at the time of the decedents death - not the market value when the heir could actually sell it. If the inheritance tax would demand calculation at the time of death, the heir could be ruined…

On the flip side, if market movements were favourable (for the taxpayer), the assets may go up in value in the meantime and save the heir a large tax bill…

(a hefty increase in the value of the yen alone could have such a nice effect, and vice versa for the prior case)

———
Never mind… a book I am reading now had examples with market rates at the time of death applied, but in another section it suggests that market rates closer to the time of tax payment can be used.

[Tkydon]

But this seems to become complicated when the decedent is a non-Japanese overseas resident. They can draft a will as they please and can designate who gets what and so forth, without any consideration of what Japanese rules may say.

In that case, what is the definition of “heir”?

My assumption was that an “heir” would be, a person designated in the will, but I’m not sure at all.

Take a case where Grandpa is overseas, his child in Japan has already died, and he names his Grandkids in his will. Are they “heirs”? Are they getting inheritance or is it bequest?

According to the Inheritance Tax Law:

Tax Payer

Inheritance Tax is levied on individuals, or deemed individuals including non-juridical organizations, public interest corporations, or Designated General Incorporated Associations that acquire property from any inheritance and bequest. Therefore, the following persons are subject to inheritance tax.

(1) Heirs

A decedent's heirs are his or her spouse and blood relatives as prescribed by the Civil Code.

(1-1) According to the Civil Code, statutory heirs are decided as follows:
(a) The spouse of the decedent is always considered an heir.
(b) The following persons become heirs in the following order together with the spouse:
(i) The natural children of the decedent (including the natural children of a predecendent heir).
(ii) Lineal ascendants by blood of the decedent
(iii) The decedent's own brothers and sisters (including the natural children of a predecendent heir).

(1-2) (Deals with Statutory Shares...)


(2) Legatees

A Legatee is an individual who acquires inherited property by bequest.
A bequest is the grant of property without compensation under directions in the decedent's will.
...
An inclusive bequest is one under which the distributed properties are not specified by the decedent's will. The Legatee takes a share with other heirs.
A specified bequest is one under which the distributed properties are specified by the decedent's will.


(3) Beneficiaries of gift contracts validated by the donor's death.
....

(4) Designated General Incorporates Associations.
...


A 20% Tax Surcharge over the standard calculated Inheritance Tax is levied when an heir or legatee is Not a decedent's child by blood, spouse or parent by blood. Adopted children or grand-children are subject to the Surcharge.

[sutebayashi]

Thank you, Tkydon.