Gifting to a child under 18?

[IloveJapan]

Hi guys, and a very Happy New Year to everyone and their loved ones.

And now out of care for my own loved ones:

I’d like to ask about the pitfalls of gifting to a child who is not legally an adult.
Everything I have read so far suggests a lot of ambiguity on how the Japanese authorities view such gifts:
A valid gift, from what I understand from reading tax accountant sites and financial articles, has to be a gift between two adults, ie, two people who have the capacity to offer and accept under law. So it could be added back to inheritance assets as a result, ands inheritance tax applied?

But at the same time, numerous financial companies like brokers and banks offer children’s accounts…so this feels like a complete contradiction!

Does anybody here have a lot of experience of gifting children? What kind of product or service did you use, and did you receive any questions about the validity of such gifts? Thank you everyone.

[sutebayashi]

I plugged 800,000 yen into my kids Junior NISAs (via their Sony Bank bank accounts) as much as I could and no one ever asked me a thing about it.

Since Junior NISA is done (for now) I am considering to discuss with their grandparents about them gifting the grandkids up to 1 million a year, which my kids will dutifully invest in their tokutei koza accounts. Per my understanding, these types of gifts will fall outside the scope of inheritance tax, and I won’t be needing that money myself anyway.

[captainspoke]

Not a direct answer to your question, but here's a recent thread on gifting to kids, that may be relevant reading:

https://www.retirejapan.com/forum/viewt ... f964d0880d

[beanhead]

A valid gift, from what I understand from reading tax accountant sites and financial articles, has to be a gift between two adults, ie, two people who have the capacity to offer and accept under law.

Where did this information come from?
I think that the gift tax above 1.1million yen per year applies to children as well.

We keep our 'gifts' to our children below this threshold.

[IloveJapan]

As I mentioned above, this is the impression I got from tax accountant sites and financial articles.

A lot of them talk about the problem of 名義預金, ie. accounts put in a child’s name that at the time of inheritance are not recognized as gifts and get added back to the estate. The rationale given is that the parents actually manage the account rather than the child.

[TokyoWart]

As I mentioned above, this is the impression I got from tax accountant sites and financial articles.

A lot of them talk about the problem of 名義預金, ie. accounts put in a child’s name that at the time of inheritance are not recognized as gifts and get added back to the estate. The rationale given is that the parents actually manage the account rather than the child.

This was never a problem in our experience. We gifted our kids right around that 1.1 million yen limit each year for several years while they were very young, using it to fund regular taxable brokerage accounts then J-NISA accounts when they became available. We had several tax audits (about 6 years worth) but that gifting was never an issue. As the kids reached the age of maturity they gained full control of the accounts and used the funds for college.

[Tkydon]

As I mentioned above, this is the impression I got from tax accountant sites and financial articles.

A lot of them talk about the problem of 名義預金, ie. accounts put in a child’s name that at the time of inheritance are not recognized as gifts and get added back to the estate. The rationale given is that the parents actually manage the account rather than the child.

Legitimate living expenses for a dependent do not constitute a gift.

An individual, regardless of age is entitled to receive in aggregate Y1.1M in gifts from all sources in a single tax year free of Gift Tax. Anything over the Y1.1M threshold will be subject to Gift Tax starting at 10% for the first Y2M...

If the recipient is a statutory heir, named in the will, or a recipient of life-insurance proceeds, any gifts in the last 3 years before the death of the donor are added back to the Estate and Inheritance Tax levied with a credit for any Gift Tax paid.
In 2028 that will be increased to the last 4 years
In 2029 that will be increased to the last 5 years
In 2030 that will be increased to the last 6 years
From 2031 that will be increased to the last 7 years

https://retirewiki.jp/wiki/Inheritance_tax
Inheritance tax, gifts, and the 2023 revised tax code

[sutebayashi]

Currently, any gifts in the last 3 years before the death of the donor are added back to the Estate and Inheritance Tax levied with a credit for any Gift Tax paid, regardless of the recipient...

I believe that only applies for the statutory heirs, as is stated in the last paragraph of the wiki page on the subject.

So, my understanding is that the grandparent / elder may give the gifts to anyone they like outside of their statutory heirs and not worry about them being liable for inheritance tax. Only the annual gift tax would apply, so gifting 1 million a year per grandkid should not incur any inheritance tax nor gift tax (assuming the grandkids don't receive other gifts to push them over than 1.1 million threshold)

[Tkydon]

Currently, any gifts in the last 3 years before the death of the donor are added back to the Estate and Inheritance Tax levied with a credit for any Gift Tax paid, regardless of the recipient...

I believe that only applies for the statutory heirs, as is stated in the last paragraph of the wiki page on the subject.

So, my understanding is that the grandparent / elder may give the gifts to anyone they like outside of their statutory heirs and not worry about them being liable for inheritance tax. Only the annual gift tax would apply, so gifting 1 million a year per grandkid should not incur any inheritance tax nor gift tax (assuming the grandkids don't receive other gifts to push them over than 1.1 million threshold)

The last paragraph applies to the second major change regarding the early-inheritance tax system.

The OP specifically mentioned Child, and a Child would be a Statutory Heir. A Grandchild would be a Statutory Heir if the grandchild's parent, the child pre-deceased the parent.

"First, the look-back period for including gifts in the value of a decedent's estate will be extended from three to seven years. This rule applies to statutory heirs, to others named in wills, and to recipients of life-insurance proceeds. To soften the blow, a new 1-million-yen deduction will be applied to gifts that took place between four and seven years before the decedent's death. For those who have gifted the maximum amount to multiple individuals in the seven years before their death."