Receipt of Life Insurance Death Proceeds from Aunt in Japan
By Kaoru Haraguchi
Posted: 6th April 2020 09:42Suppose you are living in the state of California (USA) and got a call from your cousin in Tokyo. He said that your aunt in Tokyo has died and you are entitled to receive US$1 million life insurance death proceeds.
Your aunt was a 90 year old widow. Your uncle’s only sister and the mother of the cousins were also deceased. Your mother is the only sister of the aunt but she has also passed away. Your cousin’s father was the sole brother of the aunt but he is also deceased.
Although you were shocked, you fly to Tokyo next day and request the insurance company to remit the proceeds to your bank account in California. The insurance company refuses to do so. What should you do next?
Go to see a good lawyer with a strong grasp of English commands and long experience in international succession in Japan and abroad. He or she will:
- Receive the insurance proceeds on your behalf by collecting the relevant documents required by the insurance company and submitting to them.
- File the inheritance tax return on your behalf by communicating with other heirs and maximising tax exemptions.
- Pay the inheritance tax as the tax payment agent in Japan.
- Remit the insurance proceed to your bank account in California through his bank account in Japan.
- Negotiate with their bank in Japan to ensure that the transfer of the money is not related to international money laundering.
You will get the money in your bank account in California promptly if you find a good lawyer in Japan.
How to get the Insurance Proceeds from the Life Insurance Company
1. Documents required by the Life Insurance Company
In general, the insurance company requires the death certificate of your aunt, which is a death diagnosis issued by the hospital of the aunt and the family registry showing the death of the aunt.
The family registry is personal and not all the third parties can obtain the family registry. The Japanese lawyer has the privilege to get the certified copy of the family registry.
The insurance company also requires the family registry and resident certificates or equivalent documents available in California, such as the birth certificate, driver’s license and social security card showing your name, date and place of birth, and current address, together with the Japanese translation and the reasons why these documents are substitute of family registry and resident certificate widely used in Japan.
Insurance companies in Japan have invariable practice not to pay the insurance proceeds by international transfer. This requires a bank account in Japan. If you do not have a bank account in Japan, which is not easy to open if you do not live in Japan, the life insurance company will insist on paying the insurance proceeds to the bank account of your Japanese attorney who has the power of attorney of you.
2. Filing a Proper Tax Return and Payment of Proper Tax on Time
International inheritance tax and gift tax in Japan is highly complex and almost impossible to understand, even for Japanese lawyers who are not specialised in international succession. It might be better to skip the followings if you have a good lawyer in Japan.
Even though you were born in the United States and have never lived in Japan, the property you obtained from the deceased upon the death of the deceased is subject to the inheritance tax as long as the property is located in Japan in accordance with Articles 2(2),1-3(1)(iv)of the Inheritance Tax Act of Japan (“ITAJ”).
Even though you were born in the United States and have never lived in Japan, the property given by the deceased while the deceased is alive is subject to the gift tax as long as the property is located in Japan under Articles 2-2(2) 1-4(1)(iv) of ITAJ.
As the gift tax is imposed on to prevent the avoidance of inheritance tax, the tax rate of gift tax is higher than the inheritance tax in accordance with Article 16 and 21-7– which amount to 55%. Please note that the tax exemption of JPY5 million times the number of legal heir(s) – is not applicable to the gift tax (only applicable to the inheritance tax – pursuant to Article 12(1)(v) a of ITAJ).
Although you do not succeed the insurance proceed upon the death of your aunt nor given by your aunt while she was alive, the insurance proceeds are regarded as the property succeeded upon the death of the aunt (regarded inheritance property) or given by the aunt while she was living (regarded gift property) depend on who pays the insurance premium in accordance with Articles 3(1)(iii) and 5(1) and (4) of ITAJ.
As the insurance fee was paid by your aunt, the insurance proceeds you are entitled to receive from the life insurance company is regarded as the regarded inheritance property pursuant to Article 3(1)(i) of ITAJ.
The location of the insurance proceeds is determined based on the location of the principal or major office of the insurance company in accordance with Article 10 (1)(v) of ITAJ.
As the principal and major office of the insurance company is located in Japan, the location of the insurance proceed payable by the insurance company in Japan is located in Japan and is thus subject to the inheritance tax under Articles 2(2, 1-3(1)(iv) of ITAJ.
You are required to file the inheritance tax return and pay the inheritance tax within 10 months from the date of you knowing that you are entitled to receive the insurance proceeds in accordance with Article 27(1) of the ITAJ.
Because the insurance proceeds you are entitled to receive is classified as the inheritance property, inheritance tax exemption of JPY5million x the number of statutory heirs is very important.
Under Article 36 of the Acts of General Application of Law of Japan (“AGALJ”) and Article 15(2) of ITAJ, the statutory heir is calculated by the Civil Code of Japan (“CCJ”) .
Under Article 887 (2) and 889(1) (ii) and (2) of CCJ, you and your cousin are statutory heirs in your case and thus JPY10 million (JPY5 million x 2) should be exempted from the insurance proceeds subject to inheritance tax to be imposed on you.
One (more) complexity of calculation of the amount of inheritance tax is the aggregation of all the insurance proceeds of all the heirs was obtained and exempted the aggregate amount of insurance tax exemption in accordance with Articles 12(1)(v)a of the ITAJ.
It is therefore necessary for you to communicate with your cousin to clarify as to whether he received the insurance proceeds from your aunt or not and if so how much in order for filing the proper tax return and make a proper payment of the inheritance tax of your own.
In this regard, it is necessary for you to have a Japanese attorney with strong English command for the communication with you and have a lot of experience in the international succession in Japan.
3. Transfer of the Insurance Proceed to your bank account in California
Under Articles 2(2)(1), 4 and 5 of the Act on Prevention of Transfer of Criminal Proceeds, the bank is required to clarify the identity of the person who remit the fund from Japan to U.S., such as the name and address of the person, the occupation of the person and the purpose of the transaction.
The bank is entitled to suspend the remittance until the bank is satisfied with the clarification of the above. It is not easy for you to explain the detail of the transfer of the insurance proceeds to the bank. It is therefore highly recommended to appoint a lawyer and remit the insurance proceeds through the bank account of him/her to your bank account in California.
It is fortunate that you are entitled to receive the insurance proceeds of US$1 million from the life insurance of which the fee was paid by your aunt located in Japan for you in California. It is, however, not easy to receive and remit the insurance proceed from Japan to California.
In particular, the filing and making payment of the inheritance tax imposed on the insurance proceeds is complex and almost impossible for anybody other than an expert, like me. We therefore highly recommend you find and appoint a Japanese lawyer who has strong English command with considerable experience in international succession. If you need further advice, please contact us at our email at firstname.lastname@example.org or call us at +81(0)3-6205-4404.
Kaoru Haraguchi, a founding partner of our office, established Haraguchi International Law Office in Japan in 2003. Haraguchi has engaged in many large international successions international transactions, international dispute, international debt collection and international finance transactions in both Japan and overseas, such as at Cleary, Gottlieb, Steen & Hamilton in New York, Gibson & Dunn, Crutcher in Washington D.C., Allen & Overy in London and other international law firms in Tokyo with a reputation for an area of international succession and estate planning, including international taxation. He graduated from the Law School of the University of Chicago and is a member of the bar in Japan and the State of New York.