Junior NISA and transmitting value to children in general

[david762]

Hi all

I need a bit of planning for helping out my kids (currently below 10 years old) of Japanese (+ foreign, non US) nationality. I am not a US Taxpayer.

My goal is to help prepare for the costly education/university phase mainly, any left over being anticipation of future gifts (ideally I die with 30-50M to my name and there is no inheritance tax for my wife and kids). I have life insurance (about 10 MJP x [number of kids + wife] if I die). We rent but should eventually buy, with a full loan hopefully. I choose the personal finance flair as most adequate, please let me know if not correct.

My plan is :

- give 1.1 M to each kids soon, specifically for future education purpose

- invest in equity in Junior Nisa and general investment account

- stop looking until they turn 18

- when they turn 18, give them life expense money and keep them as dependent

- when they go to university, have them sell their equity and pay the missing money (if any) directly to the institution

- when they finish university they can keep the leftovers if any

- consider doing the same donation or not the following year, etc

---

Here is my current understanding thanks to the sub, sorry for the many points - please do correct me if needed :

a) Children also have the yearly 1.1 MJPY gift exemption, and are generally separate tax subjects. I understand deciding now to give them 0.8M each for the next three years would be above this amount, but making separate decisions each year would be within the allowance.

b) Paying education for adult children is not taxable (better to do it directly to the institution to avoid confusion), however giving money for their life expenses (rent, food etc) during their university would be a gift unless I declare them as dependents. Giving money to the kids during their university years for living expenses would qualify them as dependent, as long as I would pay at least 380k a year (new minimum from 2023) and they actually need this money to live (if their income stay below a reasonable level, I think 9M was mentioned in the sub, with baitos they will be far from it). I understand paying their university fees and gifting them money as dependent would both still work for tax even if they study abroad.

c) I am looking for opening Junior NISAs at SBI (where I am already) for them and filling it up (slim global equity, reinvest dividend, and let it grow without looking) since there are a few years left in the Junior Nisa scheme. Any advice ?

d) Kid needs own account to transfer money, what institution are simple for kids ? It seems the Japan post is not in the list of possible banks :

Sumishin SBI Net Bank

Mizuho Bank

Suruga Bank

Bank of Tokyo-Mitsubishi UFJ

PayPay Bank

Sumitomo Mitsui Banking Corporation

Rakuten Bank

Seven Bank

e) I understand when the Junior Nisa system will close, no addition will be possible, the value will be reset at that time, the funds will continue to grow afterwards and cannot be touched until 18 years old, and from that point, tax would need to be paid for the gain between the end of the Junior Nisa scheme and the day the funds are taken out.

f) SBI offers to open a general trading account as the same time as the Junior Nisa. Is there any benefit to select a non-withholding account, considering kids do not have regular income ? I understand capital gains and dividend would be taxed even if they have absolutely no other income, there is no threshold right ?

g) is there any benefit to give money to kids (1.1M) beyond the Junior Nisa (0.8M) and use their own general investment account instead of mine to put the delta (0.3M), beyond just avoiding future gift taxes ?

h) can I mandate the kids to use this money for specific purposes such as education (such as paying for school fees or own living expenses during that time), how would I put that in writing ? What happens if they change their mind after becoming adults ?

i) can the kids contest inheritance if the amount I gave them at one point growth differently for each kid (ie baby would get more money at 18 than the 10 years old due to being in the market half the time). Of course I will try to equalize things (not certain I would have the money to do so if markets grow a ton), but in my home country you have to make a specific donation to secure the profits of your gift are separate from future inheritance challenges.

j) as the parent of a minor I can still take back the money, cash it out, and use it even for my own gain if I choose so (say I get cancer and get destitute, and need the money to eat and feed the family, but not spend on that child specifically)

Finally, is there anything else I should research to make the most out of the hard earned cash ?

Thank you all for any comment you may have, and apologies for the length

Cheers

 

[kristhuy]

@david762

I choose the personal finance flair as most adequate, please let me know if not correct.

A couple of recent posts have highlighted the need for an "inheritance planning" flair, so I have created one and applied it to your post. Hope that's ok.

giving money for their life expenses (rent, food etc) during their university would be a gift unless I declare them as dependents.

If they are your own children, there are no formal requirements other than the requirement that the money be spent on living expenses. If they are more distant relatives (cousins, parents-in-law, etc.), they need to be members of your financial "household" to qualify, but the donor's children and parents qualify unconditionally. (See page 3 of this PDF from the NTA's website.)

as long as I would pay at least 380k a year

I think you're getting gift tax and income tax confused here. The 380k threshold applies to your own eligibility for an income tax deduction if/when your children move overseas. It doesn't have anything to do with whether the money you give your children qualifies as a gift.

from that point, tax would need to be paid for the gain between the end of the Junior Nisa scheme and the day the funds are taken out.

No, all Junior NISA accounts will remain tax-free (via the roll-over mechanism) until the account-holder turns 20. It will not be possible to make new contributions or open new accounts after 2023 though. See this page from the FSA's website.

Is there any benefit to select a non-withholding account, considering kids do not have regular income ?

Yes. If the children do not have other income, a non-withholding account enables them to apply their 480,000 yen basic deduction to their investment income (430,000 yen for residence tax).

capital gains and dividend would be taxed even if they have absolutely no other income, there is no threshold right ?

Dividends will be subject to withholding inside a non-withholding account, but capital gains will not. Either way, taxation of capital gains and dividends is eligible for the normal deductions, so children with no other income can potentially receive a refund of withheld income and residence tax by filing a tax return (e.g., because their total income is lower than the basic deduction).

can I mandate the kids to use this money for specific purposes such as education

You can, but are you really going to sue your kids if they break this contract? I'm not even sure what attitude the courts would take to such a lawsuit. Also, the attachment of conditions to the money can affect its status as a gift. Having an agreement with the kids that they will only spend certain money on educational expenses, etc., for example, may mean that the money remains taxably yours until it is actually spent. In which case, what was the point of "giving" it to them? I think it makes sense to only give your children money that they have complete freedom to spend. That ensures that the money you give them will be classified as a gift.

Something else you may want to look into is an educational expenses trust. These facilitate the tax-free transfer of up to 15 million yen from parents, etc., to their children, where the money is earmarked for educational expenses. Note that it is possible to spend 15 million yen on your children's education tax-free without using such a trust (because educational expenses are exempt from gift tax), but the trust formalizes the arrangement.

can the kids contest inheritance if the amount I gave them at one point growth differently for each kid

These are fairly tricky areas of the Civil Code and you should seek professional advice before setting up elaborate asset transfers to your children. But in general, no, your kids cannot hold you responsible for investment decisions they made after they received a gift from you. As long as you give each child roughly the same amount during their lives, no child should, afaik, have any basis on which to challenge their share of the inheritance, even if one child's investments massively out-perform another's. (See here, for example. The relevant provision is Article 904 of the Civil Code.)

I can still take back the money, cash it out, and use it even for my own gain if I choose so

No, if you have that option, then it was never a gift to begin with, and was taxably yours the entire time. A gift has to be irrevocable, by definition. However, there is nothing stopping your children choosing to spend their money on your living expenses at any time (and no gift tax liability is triggered when you pay the living expenses of a parent).

is there anything else I should research to make the most out of the hard earned cash ?

If you are thinking about these issues in this kind of detail then you should definitely consult a tax accountant to come up with a strategy that suits your specific needs. One thing that you haven't mentioned is the use of real estate to pass wealth between generations, for example, which comes with certain tax advantages and may be something that an accountant suggests. But there are so many variables that at a certain level of detail the obvious next step is to seek advice from a licensed professional.

 

[christiandiscernment]

@kristhuy Sorry for responding to this old post, but not found anything more recent on junior nisas.

If someone was having a child early next year, do you think it'd still be worth opening a junior nisa and putting 2 years of contributions in the and just leaving it for the 20 years?

Or since further cash beyond then can't be deposited, is it just not really worth it?

 

[kristhuy]

@christiandiscernment I can't give you investment advice, but I don't see why it wouldn't be worthwhile to have 1.6 million yen worth of investments growing tax-free for 20 years.

 

[christiandiscernment]

@kristhuy Indeed, thought as much, thanks so much!

 

[jwray]

@kristhuy Does having a junior Nisa affect the children’s finances in any negative way? For example, it would count as assets and need to be cashed in before they could qualify for certain loans or grants?

 

[kristhuy]

@jwray Assets held in a Junior NISA account are effectively no different to assets held in a normal brokerage account. I don't know which loans or grants you are referring to, but if they take into account investments in securities, then they will take into account assets held in a Junior NISA account.

 

[resjudicata]

@david762

** OP do this ASAP, it takes time to get this set-up you do not want to lose 2021`s allocation. Also this program with end in 2023. **

General ->

• Postbank will make your kids life easier in the future
• SBI, Rakuten and Monex are all fine.
• Putting money in their general locks in up til 20. I would not, unless it`s a gift.

H. Parents can mandate to their children of course, but there is no formal system.

I. Once this money is in their account, it is theirs. No contesting. It

s a gift, not inheritance (EDIT =>see Stark

s warning below)

J. Probably/ maybe, the rules with J-Nisa changed with the cancelation. However, not with the General account.

But seriously, start the documentation and open those accounts this month. This stuff can take time and you have 4 months to get it done or you loose the allotment.

 

[kristhuy]

@resjudicata

No contesting. It`s a gift, not inheritance

It is possible in some situations for heirs to contest their inheritance on the basis of gifts made to other heirs while the deceased was alive, but the rules and calculations are quite complex (for example, gifts made more than 10 years before the death of the deceased are generally safe from contest). This article offers some in-depth discussion.

 

[resjudicata]

@kristhuy Okay, noted.

OP do not die for 10 years and you are good!

 

[david762]

@resjudicata Noted lol, I will do my best !

 

[david762]

@resjudicata Thank you very much for your prompt reply.

- Agreed on the timing, this is why I have it now. Need to open a bank account for each first then only I can launch the opening process at SBI (they ask for it).

- (1) I was also thinking postbank, but maybe something like 7 bank could be cheaper and more ... modern for them. I will check further.

- (2) I will go with SBI that I already use

- (3) I did not know putting money in their general would lock it up ! Considering the tax threshold for reporting that @kristhuy mentionned, that may be a useful though, I could sale enough every year for each of them to secure 0.4M of tax free capital gain, saving 0.1 M

- H/I/J clear thanks again !

 

[jwray]

@david762 Does having a junior Nisa affect the children’s finances in any negative way? For example, it would count as assets and need to be cashed in before they could qualify for certain loans or grants?