Estate Planning – Smart Money Asia

Back to basics

Well, that’s month one of 2026 done. We’ve seen stocks near record highs, the yen up and down, metals explode upwards and then hit the ceiling hard, crypto confirm a bear market, Trump & Co. lecture the WEF, and so much more. Remember Greenland? What happened to that? How about Venezuela? The Maduro raid was only a month ago!

It’s pretty much impossible to make responsible financial planning decisions day to day without a solid framework. There is simply too much noise. I realise I am part of the problem, as I try to write content that is current and engaging. So, perhaps it’s time to take a step back and review the basics.

You’ve probably heard all this before. If you read this blog regularly, you most certainly have come across this information multiple times. Sometimes you just have to put in the reps, so bear with me.

Protect yourself and your family

Start with a solid foundation, so you can handle the typical curveballs that life throws at you without having to cancel plans and unwind investments.

Pay off high-interest debt – get rid of that credit card debt asap
Emergency cash reserve – 3 to 6 months’ expenses minimum. More if you have a fluctuating income or don’t feel secure in your job. You want to be able to eat and pay bills if you suddenly lose your income. How long will it take you to find another job? That’s how long you want to cover. This should be cash in the bank – liquid and easy to access.
Basic insurance – health, income protection in case you are sick/injured and unable to work. If you have any significant debt, you may need life cover so your dependents don’t get shouldered with it if the worst happens. If you are unsure what you need, get someone to help you figure it out.
Some kind of pension – don’t overthink this. If you are employed, you probably have it in place. We’re not trying to cover your whole retirement here. To begin with, you should at least be contributing a small amount of money each month to an investment plan with a long-term focus.

Own assets

I heard a campaigning politician complain that while shareholder dividends have risen considerably over the previous 10 years, wages have barely moved. He’s absolutely right.

If the onset of inflation in Japan hasn’t convinced you of the need to own assets, learn the lesson soon. That politician doesn’t actually have a plan to fix anything.

Let’s not argue about stocks, bonds, real estate, commodities, Bitcoin, etc. These are all just ways to protect and increase your purchasing power. Cash is getting eaten alive, and it’s only getting worse. Owning as many of these different assets as you can is the only way to beat inflation.

Bear in mind that volatility is normal and should be expected. Price swings are not risk; being forced to sell or owning too little of anything real is.

Know your time horizon

Asset allocation will vary depending on how long you intend to hold the investment. As a rough guide:

Short-term money (0-3 years) – focus on capital preservation. Cash only for anything shorter than 12 months.
Medium term (3-10 years) – balanced/growth
Long term (10+years) – maximum growth

Understand and plan in your base currency

You need to build assets in the currency you plan to spend the money in eventually. Otherwise, you are exposed to currency risk. The weakening of the yen over the last few years should have driven this lesson home.

There is no point building up yen assets if you are going to spend the money outside Japan. It’s perfectly normal to have more than one base currency. If your future spending currency is unclear, diversifying across currencies is usually better than betting on one.

Three stages of personal financial planning

Accumulation – spend less than you earn and invest the difference into stocks and other high-growth assets. If asset prices decline, don’t panic and keep buying. In fact, buy more if you can.
Diversification – broaden your asset mix so you own a range of assets across the risk curve. Protect capital, whilst continuing to accumulate.
Distribution – lower the risk and focus on income generation from your accumulated assets.

Fill up tax-advantaged accounts first

Don’t spend months agonising over one investment product versus another. You can roughly prioritise in this order:

Employer matched contributions (if applicable)
Tax-free growth
Tax-deferred investments

As a rule of thumb, take “free money” first, then tax-free growth, then tax deferral.

In Japan, NISA and iDeCo are the key vehicles to understand. These are typically accumulation-stage tools.

Big lump sum investments call for diversification

Dumping a large amount of cash into a single asset class involves significant timing risk. A diversified core/satellite allocation is a good way to gain exposure to higher-risk assets without overdoing it.

Know when to get help

Some people enjoy organising their finances and are good at it. Some hate it and are generally poor at it. Understand where you are on the scale and don’t be afraid to get help.

Some people are more likely to require specialist help, in no particular order:

People with complicated cross-border issues
High-net-worth people who have covered all the basics and need more focused advice
US citizens living abroad – it’s complex!
People dealing with succession planning/inheritance

Remember: Consistency beats optimisation. A good plan you stick to beats a perfect plan you abandon.

You are probably aware that I offer a fee-based coaching service. I have deliberately kept prices low to keep it accessible to as many people as possible. In many cases, the value I provide significantly exceeds the fees I charge. You can read reviews of the service here.

In closing, yesterday the Nikkei 225 index surged almost 4% to a record high in anticipation of an LDP victory in this weekend’s election. Tons of stocks were up big on the day. The day before that, the same index rose in the morning and fell dramatically in the afternoon. A reminder that it’s impossible to guess short-term moves. For someone in the accumulation phase, both days were irrelevant.

Zoom out, cover the basics and make sure you own assets.

The rest will figure itself out.

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.

Is offshore investing still relevant?

As you may know, I have worked as an independent financial adviser for many years. I first got involved in this business in 2002, and the world has changed drastically since then. Some of the financial products that were popular at that time are almost obsolete now. So, is offshore investing over? Or is it still something worth considering for the right person?

A note here: I have never used this blog to promote offshore products, and that is not my intent here. However, I’m probably as qualified as anyone to discuss this topic, so here we go!

Much has changed

In 2002, if you were an expat in Japan, earning good money and looking for a way to invest, your options were fairly limited. Opening an investment account in Japan was not something many people considered. Along with the obvious language barrier when it came to reading product information, opening an account would involve meeting with a broker from a Japanese securities company and going through their sales process. If you think offshore advisers had a bad reputation, local securities company salesmen were not much better – they were well known for heartily recommending whatever was booming at the time and throwing their clients in at the chuffing top of the market.

Therefore, speaking to a British guy in a suit and cufflinks and investing in the Isle of Man was usually a more palatable option. Of course, these guys operated on commission, and some of them did not have your best interests at heart. Buyer beware! Many people got duped into long-term savings plans they didn’t understand.

To be fair, some of these people partly deserved what they got. All these offshore products had terms and conditions readily available in English. You just had to get a copy and read them! Plenty of people managed to ask questions, read the documents and invest in a product that they actually understood.

These days, investing in Japan could not be simpler. Go online, choose a brokerage, fill in the initial online form (with your name in half-width katakana hahahahahaha!) and then post off copies of your residence card/My Number card. You can have a brokerage account and a tax-free NISA set up in a couple of weeks.

So, is offshore investing dead?

Other advisers may have different mileage, but from my perspective, the demand for offshore products is certainly down significantly. I attribute this to two factors: getting a low-cost brokerage account is very easy, and nobody wants to pay for anything these days.

Not that avoiding high fees on investments is a bad thing. It’s one of the simplest things you can do to improve your returns. However, when offshore advisory is done well, you are not necessarily paying a lot for the product. Lump sum investment products in particular have very flexible fee structures, and a good adviser will be reducing their initial commission and taking an annual management fee for servicing you and providing ongoing advice.

Of course, much depends on your country of origin, how long you plan to spend in Japan and where you will go next. Offshore isn’t a great fit for everyone. (Americans in particular, take note. NISA isn’t necessarily a great fit for you either, and you are likely better off getting US-specific advice and investing in US-based accounts.)

Here’s a simplified view of how I see the steps to allocate money:

Make sure you have an emergency cash reserve
Fill up anything tax advantaged first – in Japan, that would be NISA, iDeCo
Any money over and above that is up for consideration – it could be invested in a taxable Japan brokerage account, an international brokerage account like Interactive Brokers, or offshore.

Again, a lot depends on nationality and personal situation, so no advice here, but some of the benefits of offshore get overlooked in the relentless pursuit of low fees.

I will leave the offshore regular savings plans out of this, as they are somewhat outdated. But many people, including myself, still have plans set up years ago, and that’s fine.

The offshore portfolio bond is for larger lump sum investments. It’s essentially an insurance structure; the individual owns the policy, and the policy owns the assets. It is open architecture so policyholders can access ETFs, mutual funds and individual stocks. For Japan residents, you are not required to report capital gains and dividends within these policies as they occur. You report when you exit the policy and pay a one-time tax payment (一時所得) of around 20% of gains. E.g. You invest $100k and the policy grows to $200k – you cash out the policy and owe approximately $20k.

So you effectively get gross roll-up inside the policy. You can switch investments and take profits as much as you like without triggering a taxable event. For some people, that alone is worth the fees.

If you leave Japan, you just take it with you, and when you cash out, you may end up owing nothing here. Of course, some people may have to factor in the exit tax and the lookback, etc. It depends on amounts and timeframes.

Use of trusts

The other thing you can do with offshore insurance products is put them in a trust. Trusts can be very effective for estate planning, particularly for, but not limited to, British nationals.

In the case of Isle of Man assets, probate will be required on the death of the last policyholder before proceeds can be paid out of the plan. Placing the policy in trust avoids this lengthy and often frustrating process, allowing money to be paid out quickly to the beneficiaries.

Trusts allow the donor to maintain a degree of control over the assets and, in some cases, to have limited access to the capital. A discretionary trust, for example, can instruct the trustees to hold the assets until the beneficiaries reach a certain age before distributing the proceeds to them.

For individuals who are treated as UK long-term residents, a trust is an effective way to shield assets from UK inheritance tax. Trusts are also worth considering for anyone who plans to become a UK long-term resident in the future.

A note here: trusts will not help you to mitigate Japanese inheritance tax. Japanese tax authorities do not recognise foreign trusts and generally look through them and tax the assets. If Japanese inheritance tax is a concern, you should first do your own reading and then discuss with a local tax professional before taking action. Reddit is an incredible resource, but you should not be taking personal tax advice from there.

If you have an offshore policy that you have been holding onto and perhaps do not know what to do with, it could be worth discussing with your adviser as to whether it would be better to put it into a trust. If you have lost contact with your advisor, you are welcome to contact me. I can also assist with general advice on whether it is better to keep the policy or cash it in and invest elsewhere.

In conclusion

Offshore investing is generally less relevant than it used to be. However, it is far from dead. In particular, high-net-worth individuals may find there are significant benefits to investing in a tax-free jurisdiction, and/or taking assets out of their own name.

For simple day-to-day investing for longer-term Japanese residents, NISA and iDeCo are incredibly hard to beat, and local brokerage accounts provide access to a wide range of assets. We are really spoiled these days. If you need help getting things organised, don’t forget that I offer fee-based personal finance coaching!

Top image by Clker-Free-Vector-Images from Pixabay

Insurance: Is It Worth It?

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I first heard this story when a friend of mine posted about it the other day: The All England Lawn Tennis Association, which organises the Wimbledon tennis tournament, has been paying pandemic insurance for the past 17 years at a cost of around £2 million per year. That’s a pretty hefty premium for what people are calling a “black swan event”. My friend wondered if there was a person in their annual budget meeting who had to fight to get that paid every year.

Many people face a similar dilemma. Paying for insurance every year to cover an unlikely event can seem like a waste of money. The Japanese even have a term for someone who buys more insurance than they need and ends up poor for it: 保険貧乏 (hoken binbou)

Of course there are some risks that really do need to be considered. You are not even allowed to drive your car without proper insurance. The types of insurance that are important from a financial planning perspective are:

Health insurance
Income protection insurance
Critical illness insurance
Life insurance

Health insurance – if you pay into the Japanese national health insurance system, you are covered for 70% of the cost of medical treatment in Japan. That’s enough for visits to the clinic for a sniffle, but may leave you with a larger bill if you are hospitalised for a long period. Private health insurance is a good way to cover the other 30%. It can also be useful when you travel overseas, and could even end up covering totally unforeseen treatment later in life – see here.

Income protection insurance – what if you were sick or injured and unable to work for a long period? Your company may look after you for a while, but after that you are on your own. With income protection, you can cover up to 75% of your current income up to age 65 if you are unable to work. This is especially valuable when you think that the loss of your income would also prevent you from saving and investing for your future, making life even tougher after retirement age.

Critical Illness Insurance – unlike income protection, which pays a regular income, CII pays out a lump sum on diagnosis of a critical illness (cancer, heart attack, stroke etc). This money allows you to take time off, get treatment and get well again. We are lucky to live in an age where we are likely to make a full recovery from a serious illness and be able to go back to work, but it’s important not to go broke in the process.

Life Insurance – do you have any loans / liabilities? Life insurance makes sure you don’t leave those behind for your family if something happens to you. It also means you can continue to provide income to your family after you are gone. Health and income protection come first, but once you have a family and a mortgage, life insurance becomes an important part of your protection strategy.

If you are a short-term expat, it’s best to look for insurance with companies in your home country, or via an offshore provider. If you are long term, it would make sense to get something local. My experience with insurance in Japan is that the products are all very similar, so finding a salesperson who you get along with who isn’t pushing you to buy cover you don’t need is the most important thing.

If you think you might be missing some important coverage, it may be time for a protection review. You never know when something unexpected might happen.

And by the way, when they cancelled Wimbledon this year, the payout to the Lawn Tennis Association for £34 million in pandemic insurance premiums over 17 years?

£141 million!!!

If you insure yourself smartly, it’s worth the money.

Death and Taxes in Japan

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Benjamin Franklin said that there are two things certain in life: death and taxes. Following a change in Japan inheritance tax law in April 2017, those two things may have come into sharper focus for some foreign residents. You may have come across this Bloomberg article on the “bizarre” death tax that deters expats. It certainly seems that Japan does not make it easy for people to come and live and work here long term.

So what do expats need to know about the recent changes to inheritance tax law Japan?

Short term residents: Foreigners staying temporarily in Japan have been excluded from gift and inheritance tax on overseas assets. Staying temporarily is defined as residing in Japan for not more than 10 of the last 15 years and holding a “table 1 visa”, such as a work visa. If you are in this category and you receive an inheritance from a family member overseas, for example, it is not subject to inheritance tax in Japan. This also applies if the transfer of overseas assets is between you and another “temporary resident”. However, if you die and transfer your overseas assets to a Japanese national there is no exclusion. The transfer of Japanese assets will be subject to Japan gift or inheritance tax.

To keep it simple, if a relative dies and leaves you a house overseas – no tax in Japan. If you die and leave another temporary resident heir a house overseas – no tax in Japan. If you die and leave another temporary resident heir a house in Japan – taxed in Japan. If you leave a house overseas or in Japan to a Japanese heir – taxed in Japan.

Long term residents: If you hold a “table 2 visa”, which is a spouse visa or permanent residence, and/or have lived in Japan for more than 10 of the last 15 years, you are a long term resident. You are therefore considered an unlimited taxpayer. This means that any transfer of assets, in Japan and worldwide, will be subject to Japan gift and inheritance tax. This also comes with the controversial “look back” rule, whereby even after leaving Japan, the tax on worldwide asset transfers continues for 10 years. So a situation could arise, for example, where a long term resident leaves Japan, dies within 10 years, and an heir who has never lived in Japan will be subject to Japanese inheritance tax on the donor’s worldwide assets.

So what can you do?

If Japan inheritance tax is a concern, and you are currently a short term resident, then the number one thing you can do is leave Japan before you reach the 10 year mark. (this is quite sad when you consider Japan’s long term demographic problems – you would think that encouraging productive foreign residents to stay and contribute to the economy would be a good idea, but there you go…)

If you are a short term resident with a table 2 visa, such as a spouse visa, you might consider changing to a table 1 visa if possible.

If you are a long term resident, you have some thinking to do, particularly if you have significant worldwide assets. Retiring in Japan may not be so attractive when it comes with up to a 55% tax bill on handing down everything you own. If you are going to leave, you will want to do it while you are still healthy and confident of surviving the 10 year lookback.

The April 2017 reform was essentially implemented to counter wealthy Japanese from moving abroad and passing on assets to heirs who were not born in Japan, or had given up Japanese nationality, but unfortunately the new rules will deter long term foreign residents from living out their life here.

Regardless of tax considerations, writing a will is something everyone should consider, particularly those with assets spread around the world. Most people would prefer to make clear “who gets what” after they are gone rather than it being dictated by local laws.

Further reading: this PWC report on the April 2017 reform is both clear and comprehensive.