Adoption as a means of reducing inheritance taxation is said to be common among wealthy people. In overturning a lower court decision that invalidated a late Fukushima Prefecture man's adoption of his grandson in 2012 on the grounds that the step was a tax-saving measure, the Supreme Court has ruled that the intention to reduce the amount of taxes will not automatically annul the adoption itself. The top court decision may be taken as a sign that the judiciary condones adoption as a tool of reducing inheritance tax. But the National Tax Agency holds that such an adoption, even if it's confirmed valid, may still not qualify for deduction from taxable assets.
It would be natural for people to want to leave behind as much assets as possible to their family members. Under the inheritance tax system, the basic deduction from the taxable assets rises as the number of heirs increases. It is reportedly not uncommon for the wealthy to adopt their grandchildren or spouses of their children to reduce the tax imposed on the assets inherited by the heirs.
But such tax-saving measures over inheritance could sow the seeds of trouble among the heirs, since some members of the family might sense that they had been unfairly treated compared to others. The case at issue was taken to the court by the man's daughters, who argued that the deceased's adoption of the son of their brother, which effectively allowed the brother's family to inherit more of the father's assets than each of the daughters, was invalid because it had been intended as a tax-saving measure. Such discord may not be resolved by a court decision. To avoid that, it is advisable that these matters be thoroughly discussed in advance among family members.