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Many Adoptions in Japan are Not About Raising Children

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This post is by Sayuri Umeda, a foreign law specialist who covers Japan and various other East Asian and Southeast Asian countries. She has previously written posts for In Custodia Legis on various topics, including testing of older drivers in Japan, English translations of post-World War II South Korean laws, laws and regulations passed in the aftermath of the Great East Japan Earthquake, and the regulation of fugu (pufferfish) in Japan. She has also highlighted our collections related to Japanese family law and Cambodian law. 

Meijijingu, a family. (Photo by Flickr user huw-ogilvie, Nov. 29, 2009.) Used under Creative Commons License,
Meijijingu, a family. (Photo by Flickr user huw-ogilvie, Nov. 29, 2009.) Used under Creative Commons License,

While growing up in Japan I never thought that many adoptions took place there. I had never met an adopted classmate during my childhood. However, I recently learned that Japan has the world’s second highest adoption rate with more than 80,000 adoptions per year. The country with the highest rate is the United States. (Chiaki Moriguchi, Why Does Japan Have a Small Number of Adopted Children?, in Arata na risuku to shakai hosho [New risks to our lives and social security], 53, 55 (Toshihiro Ibori et. al. eds., 2012) (in Japanese).)

So, where are all these Japanese adopted children?

Not many young children are actually adopted in the country. In Japan, most people who are adopted are adults. (Chiaki Moriguchi, Child Adoption in Japan, 1948-2008: A Comparative Historical Analysis, 61(4) Economic Review 342, at 344 (Oct. 2010).) However, this does not mean there are not many children in need of protection who could potentially be helped through adoption. In 2003, there were 36,000 children in need of protection, but only 7% of these children were adopted or placed in foster care. In comparison, in the United States, there were 520,000 children in need of protection, and 28% of them were adopted or under long-term foster care. Of the children needing protection in Japan, about 53% will stay in institutions until they can become independent. (Why Does Japan Have a Small Number of Adopted Children?, supra, at 54.) However, the Japanese government has started promoting foster care for children in need of protection, and the ratio of children under foster care has recently significantly increased. (Ministry of Health, Labour and Welfare, Tasks and Future of Social Care (Summary), at 10 (in Japanese).)

One of the reasons the number of adoptions has not increased is that the parents of children in institutions do not agree to their children being adopted. This may be because they can see their children at any time if the children are in institutions. Another reason could be that public child counseling offices do not have the necessary expertise and experience to arrange adoptions. (Yasuhiro Okuda, Genko ho no hubi to rippo jujitsu [Shortcomings of current law and reality]in Yoshi engumi assen [Mediation of Adoptions] 1, at 5 (2012).)

The adoption of an adult who is younger than an adoptive parent is possible in Japan. (Civil Code, Chapter IV, Act No. 222 of 1947, amended by Act No. 71 of 2016, art. 793.) In fact, it is easier to do this than to adopt a minor, as adopting a minor requires court permission unless the minor is the person’s lineal descendant. (Id. art. 798.) As of 1982, about 70% of adopted adults were men in their 20s and 30s. It is assumed that many of these young men were adopted to succeed the house/family and family business of the adoptive parent. (Why Does Japan Have a Small Number of Adopted Children?, supra, at 57.) In earlier times, the old Civil Code had a muko yoshi (son-in-law adoption) system where a man who married a woman was adopted by her parents. (Civil Code, Ch. 4 & 5, Act No. 9 of 1900, art. 788, para. 2. See also, Regarding Entry of Muko Yoshi Adoption-Marriage on Family Registry, Anzai Judicial Scrivener Office (in Japanese, last visited Mar. 1, 2017).) Muko yoshi was used typically when a household did not have proper male successor. (Satoshi Sakata, Historical Origin of the Japanese Ie System, Chuo Online (Jan. 28, 2013).)

It seems that the situation has not changed much in recent years. Figures show that 98% of adoptions in Japan do not require court permission. This number includes children adopted by stepparents and grandparents; therefore, they are not all adult adoptions. (Child Adoption in Japan, 1948-2008, supra.) The ages of those adopted were not specified, so it unclear what proportion might be younger men adopted for family business succession purposes.

Another reason behind the number of adult adoptions is that they can be used to save on inheritance tax. In a Diet (Japan’s parliament) session in 1987, a representative said at a committee of the House of Representatives that he assumed that 95% of deceased persons who had assets that were large enough to incur the inheritance tax adopted a child’s spouse and/or a grandchild. (Statement by Masakatsu Okada, Minutes of Special Committee on Issues on Land, etc., House of Representatives, No. 3, at 24 (Dec. 5, 1987).) There can be savings on inheritance tax through increasing the number of children who will be heirs, as a per-child deduction amount is allowed. (Inheritance Tax Act, Act No. 73 of 1950, amended by Act No. 15 of 2016, art. 15.) Also, the tax rate may be lower because the amount inherited by each heir becomes lower. (Id. art. 16.) The inheritance tax is imposed on persons who receive inheritance in Japan. (Id. art. 1-3.)

In order to prevent excessive use of adoptions for tax saving purposes, the Inheritance Tax Act was amended in 1988 (Act to Amend Income Tax Act And Other Acts, Act No. 109 of 1988). The amendment limited the number of adopted children of the deceased that can be used to calculate deductions when the total taxable value of the deceased’s inherited asset is calculated. When the deceased does not have a biological child, a deduction for up to two adopted children can be applied. When the deceased has a biological child or children, a deduction for one adopted child can be applied. (Id. art. 15, para. 2.) If there is an adopted child/children who was adopted through a procedure specially designed to create the same parent-child relationship as that of biological parent and child, the number of such adopted children is not limited for the inheritance tax deduction. (Id. art. 15, para. 3.)

People may wonder if adoption for tax saving purposes is legally valid. Typically, such adoptions are only on paper. The Supreme Court decided a case on this issue recently. (Heisei 28 (ju) 1255, S. Ct. (Jan. 31, 2017), Courts In Japan website (click on the characters beside the PDF icon).) In the case, a minor grandson was adopted by the deceased near the end of his life for the purpose of saving tax. As stated above, when a lineal descendant is adopted, even if the person is a minor, a court decision is not needed for the adoption. At the time of the distribution of the inheritance, disputes arose among the children of the deceased and some of the heirs sued the adopted grandchild, claiming the adoption was invalid. The Supreme Court stated that the motive of saving tax can co-exist with the intention to adopt a person. In the case at hand, the Court did not find any facts that suggested a lack of intention to adopt the grandson. Therefore, the Court decided the adoption was valid. (Sayuri Umeda, Japan: Adoption of Grandchild in Order to Save on Inheritance Tax Can Be Valid, Global Legal Monitor (Feb. 23, 2017).)

There is another complication. The Supreme Court made its decision about the validity of the adoption based on the Civil Code. However, the Inheritance Tax Act has a special provision. It states that adopted children may not be counted for deduction purposes if the head of a tax office decides that it unfairly reduces the tax burden. (Inheritance Tax Act, art. 63.) According to a newspaper article, the National Tax Agency has stated that the Agency may not approve the tax deduction even if an adoption is valid. An accounting firm has provided possible scenarios in which this provision could apply: (a) the adoption took place when the person’s death became imminent; or (b) the person had dementia when the adoption took place. (Ito Accounting Firm, Is an Adoption for the Purpose of Tax Saving Legal as Long as Intention to Adopt Exists?, Sozoku Tokyo (Feb. 11, 2017) (in Japanase).) However, another firm does not think a tax office head would apply article 63 in these cases because the burden of proof is on the tax office and it is not easy to say that tax saving in these cases is unfair. In addition, it appears there have been no known cases regarding the application of this provision. (Motonobu Mitamura, How About the Relationship Between Adoption and Inheritance?, Japan Central Accounting Firm Co., Ltd. (Nov. 1, 2011) (in Japanese).)

In any case, the practice of adoption in Japan is clearly different from what generally takes place in the United States and many other countries.

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