"Sōzoku Saseru" Wills in Japan: Specific vs. Universal Succession of Shares and Its Implications?

In Japanese succession planning, particularly concerning shares in family-owned or closely-held companies, the choice of testamentary language can have profound legal and practical consequences. One frequently used but often nuanced phrase in Japanese wills is 「相続させる」 (sōzoku saseru), which literally translates to "to make [an heir] inherit" or "to have [an heir] succeed to." Understanding how Japanese courts interpret this phrase—whether as a directive for specific succession akin to a testamentary gift (izō), or as a form of universal succession detailing the method of estate division (isan bunkatsu hōhō no shitei)—is crucial for determining shareholder rights, transfer procedures, and the applicability of certain corporate law provisions.

Understanding the "Sōzoku Saseru" Clause

When a testator uses a "sōzoku saseru" clause in their will to designate a specific asset (like company shares) to a particular heir, its legal nature can be ambiguous if not further clarified.

• If the beneficiary named in a "sōzoku saseru" clause is not a legal heir, the disposition is unequivocally treated as a testamentary gift (遺贈 - izō).
• The complexity arises when the beneficiary is one of the testator's legal heirs. In such cases, Japanese legal practice, significantly shaped by a landmark Supreme Court decision on April 19, 1991 (Heisei 3), leans towards a specific interpretation. This ruling established that a will directing a specific asset to be "inherited by" a particular heir is, in principle, to be construed as a designation of the method of estate division under Article 908 of the Civil Code.

The Supreme Court reasoned that this interpretation aligns with the testator's most probable and reasonable intent: to ensure that the designated heir receives that specific asset directly and immediately upon the testator's death, without the need for subsequent estate division discussions (遺産分割協議 - isan bunkatsu kyōgi) or court-mediated division (審判 - shinpan) concerning that asset. The transfer of the designated property to the heir takes effect at the moment of the testator's death, provided the will does not explicitly make the succession contingent upon the heir's acceptance or other conditions.

However, the will's wording or "special circumstances" (特段の事情 - tokudan no jijō) could lead to it being interpreted as a testamentary gift even to an heir. The default, though, remains a designation of estate division.

Implications for Share Transfers: Navigating Corporate Law

The interpretation of a "sōzoku saseru" will—as either a designation of estate division or a testamentary gift—has critical implications for the transfer of shares, especially if those shares are subject to transfer restrictions (譲渡制限株式 - jōto seigen kabushiki), common in non-public Japanese companies.

1. If Interpreted as a Designation of Estate Division (akin to Universal Succession for the inherited asset):

This interpretation views the heir's acquisition of the shares as a direct result of their status as an heir succeeding to a part of the estate as specified by the testator.

• Company Approval for Restricted Shares: Generally, when shares are acquired through universal succession like inheritance, the company's approval for the transfer (typically required for restricted shares under its articles of incorporation) is not necessary. The "sōzoku saseru" will, under this interpretation, effectuates this direct succession.
• Company's Right to Demand Sale from Heirs (Companies Act, Art. 174): Even if company approval for the acquisition by the heir is not needed, Japanese company law (for non-public companies with relevant articles) allows the company to demand that an heir who has acquired restricted shares through inheritance sell those shares back to the company or a company-designated third party. This provision would still apply if the shares are acquired via a "sōzoku saseru" will interpreted as a method of estate division, because the acquirer is indeed an "heir."
• Interaction with Renunciation of Inheritance (相続放棄 - sōzoku hōki): If an heir designated to receive specific shares through a "sōzoku saseru" clause chooses to renounce their entire inheritance (e.g., to avoid the deceased's debts), they forfeit their status as an heir. Consequently, they cannot participate in the estate division and thus lose the right to acquire the shares specifically designated to them in this manner.

2. If Interpreted as a Testamentary Gift (Izō) to an Heir (Specific Succession):

This interpretation treats the transfer as a specific bequest from the testator to the heir, similar to a gift made to a non-heir.

• Company Approval for Restricted Shares: Because a testamentary gift is a form of specific succession (a transfer of a particular asset rather than a general taking over of rights and duties), if the shares are restricted, the company's approval for the transfer to the heir-legatee is generally required. The heir, in this capacity, is seen as any other acquirer of restricted shares.
• Company's Right to Demand Sale from Heirs (Companies Act, Art. 174): This provision, allowing the company to demand that heirs sell back inherited restricted shares, would not apply if the acquisition is characterized as a testamentary gift, even if the recipient is also an heir. The rationale is that the acquisition route is by specific bequest, not "inheritance" in the narrow sense targeted by Article 174.
• Interaction with Renunciation of Inheritance: An heir who is also a legatee under a "sōzoku saseru" will interpreted as a testamentary gift can renounce their general status as an heir (thus avoiding succession to the deceased's general assets and debts) but still choose to accept the specific testamentary gift of shares (unless they separately renounce the gift itself under Civil Code Art. 986(1)). This offers flexibility to isolate the bequeathed shares from the broader estate.

Summary of Key Differences:

The Overarching Constraint: Forced Heirship Rules (遺留分 - Iryūbun)

It is crucial to understand that regardless of how a "sōzoku saseru" clause is interpreted, it does not supersede Japan's forced heirship rules, known as iryūbun (legally reserved portion). Certain statutory heirs (typically the spouse, children, and lineal ascendants) are entitled to a legally protected minimum share of the deceased's estate, which cannot be completely defeated by a will.

If a "sōzoku saseru" will designates shares to one heir in such a quantity that it infringes upon the iryūbun of other statutory heirs, those other heirs can make an iryūbun abatement claim (遺留分減殺請求 - iryūbun gensai seikyū). This claim effectively claws back a portion of the bequeathed asset (or its value) to satisfy their legally reserved share. Therefore, while a "sōzoku saseru" will can direct how an asset passes, it cannot arbitrarily reduce the iryūbun entitlements of other heirs. This is a fundamental limitation on testamentary freedom in Japan and a critical factor in any succession plan involving valuable company shares.

Valuation Considerations in "Sōzoku Saseru" Scenarios

While the "sōzoku saseru" clause itself dictates the transfer of shares to the designated heir, the valuation of these shares (jika or fair market value) remains a pertinent issue, particularly for unlisted SMEs, for several reasons:

• Iryūbun Claims: Calculating the value of the estate and the iryūbun portions requires valuing all assets, including the shares transferred by the will.
• Inheritance Tax: The heir receiving the shares will be subject to inheritance tax based on the assessed value of those shares at the time of death.
• Potential Related Transactions: If the heir later sells the shares, or if the company buys them back (e.g., under an Art. 174 demand), the valuation will be key for capital gains tax or deemed dividend calculations.

Japanese tax authorities have detailed rules for valuing unlisted shares, primarily found in the National Tax Agency's Property Valuation Basic Circulars. These rules aim to establish an "objective exchange value" (客観的交換価値 - kyakkanteki kōkan kachi), though the process for SMEs can be complex, often involving a blend of net asset value, comparable company data (if available), and dividend-paying capacity. For transfers between relatives outside of immediate inheritance, such as a subsequent sale by the heir, different valuation considerations might apply, with a focus on avoiding deemed gifts if the price is substantially below fair market value.

Practical Considerations for Business Owners and Heirs

When utilizing a "sōzoku saseru" will for share succession, several practical points should be kept in mind:

• Clarity in Will Drafting: The testator's intention should be expressed as unambiguously as possible. If the intent is a specific method of division to ensure a particular heir receives the shares directly as part of their inheritance portion, this should be clear. If it's intended as a testamentary gift with the distinct legal consequences outlined above, that too should be evident to avoid disputes over interpretation.
• Review Company's Articles of Incorporation: Understand any share transfer restrictions and, importantly, whether the articles contain a provision allowing the company to demand the sale of shares from heirs (the Art. 174 mechanism). This will significantly affect the heir's position even if they acquire shares through a "sōzoku saseru" will.
• Holistic Estate Planning: A "sōzoku saseru" will is just one component of a comprehensive estate plan. It must be coordinated with plans for other assets and debts, and always consider the potential iryūbun claims of all statutory heirs. Simply designating shares to one child might not be a complete solution if it triggers substantial iryūbun claims that could force the sale of those very shares or other key assets to satisfy them.

Conclusion

The "sōzoku saseru" will is a widely used and potent instrument in Japanese succession planning, particularly for directing the fate of company shares. However, its legal characterization—predominantly as a designation of how the estate should be divided rather than a simple testamentary gift to an heir—carries distinct and significant consequences. These include the need (or lack thereof) for company approval for share transfers, the applicability of statutory buy-back demands from the company, and how the heir's general renunciation of inheritance affects their claim to the shares. Above all, the indefeasible rights of other heirs to their legally reserved portions (iryūbun) act as a fundamental check on the testator's dispositive power. For business owners and their families, navigating these complexities with careful legal and tax advice is paramount to achieving intended succession outcomes and maintaining the stability of their enterprises.