Protecting your assets for non-US citizen spouse

[Bruce Crawford]

I am trying to learn the best way to protect assets in the US when I die. My wife is Japanese (we live in Tokyo) and I want to be sure she will inherit all assets in the US. Any suggestions on the best way to do this?

I heard from a CPA (not lawyer) that I should set up a living will and/or a trust to put everything in. I don't want to put her name on the mortgages as in Japan, we have to file separately and trying to divide up buildings can be a headache (but possible) but doesn't address previously purchased properties. 

Thanks for any advice people can give. I know there are several other BPers asking the same question

Bruce Crawford

[Daniel Mills]

Hi @Bruce Crawford I am definitely in the same boat as you and have fretted over this for a couple of years now.

My personal portfolio consists of 9 SFHs in the US and I'm also part owner of an investment company which has about 40 units in Alabama. My wife is also Japanese and we live and work in the Kansai area. And, I use the depreciation on my SFHs to reduce my Japanese taxes.

I talked to a US attorney concerning my situation and his advice was to create an irrevocable living trust, then place all of my SFHs in land trusts and then in LLCs which are held by the living trust. But, he had no knowledge of how this might affect my Japanese taxes. I consulted a few Japanese CPAs, who didn't really know, but they said it's possible that by transferring the property ownership to any of these entities, including the living trust, could be seen as a sale in Japan and you would have to pay the capital gains, which can be substantial because of the recapture.

In addition, placing the properties in an LLC could make it impossible to claim the deductions on your Japanese taxes because it's not held in your personal name. However, one Japanese CPA said that Japan does recognize LLCs as pass-through entities from certain states, but it's (sucks teeth) muzukashii. 

Like @David Gotsill points out, I think, in the end, you just have to decide the chance you are willing to take and do it. I have decided to create the living trust with my wife and to transfer all of my assets there. If I ever get questioned about it, I will say it is simply a part of my estate plan and is just to make asset transfer easier when I die. I am reporting everything and paying taxes as required by both countries, then cross my fingers and hope for the best. I think it would be really unlikely to get "caught" anyway, but that's what I would do if it happens.

For me, I just want to make sure that if I die, it is as smooth as possible for my wife. To that end, one of the things I am working on right now is a step-by-step guide for her if it happens. I would be happy to share it with you guys when I get it done. I am also getting an international life insurance policy that will allow her to pay off all mortgages on the US properties because as a non-US citizen, she won't be able to assume the mortgages. 

Sorry for the long post, but I would love to keep this going because it's such a difficult topic for those of us living in Japan, and has caused me a lot of stress over the years.

Daniel