Taxing Money That Has Not Been Earned Yet? The Strange Inheritance-Tax Problem Facing Writers

Recently, a startling claim about the inheritance tax on a famous writer’s estate spread across social media.

The estate was said to be worth about $33 million (¥5 billion), with an inheritance-tax bill of roughly $22 million (¥3.3 billion).

Whether those figures were accurate or not, the story introduced me to a rather frightening feature of Japan’s inheritance-tax system.

Tax must be paid in cash even on assets that have not yet turned into cash.

And as a rule, it is due within ten months.

They certainly work quickly.

Counting Future Royalties as an Asset Today

Imagine that a bestselling author dies.

The author’s books may continue to sell. They may also be adapted into films or television series.

For tax purposes, the copyright is assigned a value based on factors such as royalty income.

So far, that makes sense.

The problem is that this value is not cash in the family’s hands.

Even if the copyright is valued at about $6.7 million (¥1 billion), that does not mean there is $6.7 million sitting in a bank account. Income that may arrive over many years is being valued as an asset today.

Inheritance tax, however, must generally be paid in a lump sum in cash.

To the tax authorities, future royalty income is a perfectly valid asset.

To the family, it is money they have not received yet.

Future income counts as an asset, but a promise to pay the tax in the future does not count as payment.

It is a cash-collection logic ruthless enough to impress even a loan shark.

Did a Famous Actress’s Family Renounce Her Estate Too?

A similar story surfaced before.

When a famous actress died, her estate was estimated at about $13 million (¥2 billion), and relatives living overseas were reported to have renounced the inheritance.

It is unclear whether tax was the reason, but the case was even discussed in Japan’s parliament.

To inherit the assets, the family may first have to find a large amount of money.

I had assumed inheritance meant receiving money. Apparently, it can begin with raising funds instead.

Installments Are Possible, but…

If there is not enough cash, Japan does have a system that allows inheritance tax to be paid in installments.

However, it comes with conditions, generally requires collateral, and incurs interest charges.

Nor can the family simply hand the copyright itself to the government as payment.

Land or shares can sometimes be sold, but an author’s copyright is a different matter.

Who will buy a right whose future earnings are uncertain, and how much will they pay for it?

It is treated as a valuable asset when the tax is calculated, but the moment cash is needed, the family has to start looking for a buyer.

Redistributing Wealth and Preserving Creative Work Are Different Issues

Inheritance tax is intended in part to prevent wealth from becoming concentrated within a small number of families.

I agree with that principle.

But inheriting a large amount of cash is not the same as inheriting a right, such as a copyright, that may generate income in the future.

A copyright is not money that can be freely spent the moment it is inherited.

It is also an important right that allows works to remain in print and adaptations to be approved.

If a family has to give up those rights in order to pay inheritance tax, that also creates a problem for preserving cultural works.

If an asset is valued according to future income, perhaps the tax system should allow payment to follow the timing of the income actually being earned.

What a Writer Leaves Behind

In any case, being a writer is hard work.

While alive, writers struggle to produce work without knowing whether it will sell.

If it finally succeeds, they pay income tax.

After they die, the potential future value of works that may continue to sell is calculated, and inheritance tax is imposed.

The writer can no longer write, but the work keeps working.

And the tax authorities keep working with equal precision.

For a writer, the final challenge turns out to be not a publishing deadline, but a tax deadline.

And this is the one deadline that will not be extended even when the writer dies.