A 6.9 Billion Won Estate, a Will That Leaves the Wife Nothing, and a Son Who Wants the Company
Yoo Han-sik, 68, founded a precision-parts manufacturer thirty-one years ago and still owns 100% of it. An appraisal for tax purposes puts the company at 3.6 billion KRW. He also owns a factory building and land worth 1.2 billion, a commercial building worth 600 million, and the apartment where he and his wife live, worth 900 million. He holds 300 million in a term deposit and a 300 million won whole-life policy on his own life, with his son as beneficiary; Yoo has paid every premium. His wife is 65 and has 400 million in her own name. Their son, 42, is the plant manager and wants to run the business; their daughter, 45, is a school teacher who has never worked in the company. Yoo's will, drafted by a lawyer, leaves the company shares to the son and everything else to the daughter, and says nothing to the wife. The son has asked whether the company should be transferred now or at death. Yoo's health is failing but he is expected to live several more years.
1. Estimate the inheritance tax exposure and evaluate whether the will actually achieves Yoo's objectives, including the position of the wife.
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Gross estate: 3.6 + 1.2 + 0.6 + 0.9 + 0.3 deposit + 0.3 policy = 6.9 billion KRW. The policy is included because Yoo paid the premiums and was the insured.
Deductions, approximately: basic 200 million; spouse deduction, which is capped in the low billions and depends on how the estate is split (this split leaves her nothing, which itself limits the claim); a financial-asset deduction of perhaps 100–120 million. A working figure of 3.2–3.4 billion of deductions leaves a tax base near 3.5 billion, and at the top marginal bracket with the progressive credit the tax lands in the region of 1.2–1.3 billion KRW. This is an order-of-magnitude check only - a formal appraisal and the current statute must govern.
The will fails on three counts. First, it gives the wife nothing, so she has a legal-reserve claim against the estate; the legal reserve for a surviving spouse is one-half of her statutory share, roughly 3/14 of the net estate. Second, the legal-reserve rules were found unconstitutional by the Constitutional Court in 2024, with the legislature directed to amend them - confirm the law in force at the relevant date rather than assuming the old regime. Third, the daughter receives four illiquid properties while the tax falls due in cash within months, and the shares that could fund it went to her brother. Liquidity, not fairness, is the flaw.
2. Compare transferring the company now by gift with transferring it at death, and identify the constraint that decides the timing.
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Transfer at death puts 3.6 billion of value into the estate at its then-current worth, taxed at inheritance rates reaching 50%, and the shares may have grown for another several years before that valuation date.
Transfer now freezes the value. If the company grows at 8% a year, five years of growth - roughly 1.7 billion - escapes the estate entirely. Korea also resets the heir's acquisition cost to the valuation date for inherited assets, so gifting at today's lower value is not automatically worse for future capital gains either.
The deciding constraint is cash to pay the gift tax. A gift of 3.6 billion attracts a tax bill likely above 1 billion KRW, and Yoo holds only 300 million in liquid deposits. Ordinary per-person deductions are far too small to matter here: about 50 million per adult child and 600 million for a spouse per ten-year period, with gifts to the same person aggregated across ten years.
The workable route is the family-business succession regime, which allows a reduced rate and long instalment payment on a transfer to an heir who actually works in the business, subject to participation, post-transfer holding, and employment conditions. The son qualifies; the daughter does not. Verify the current caps, rates and conditions before filing, and treat the instalment schedule as the real design constraint - the plan only works if the company's cash flow can service it.
3. Explain how the 300 million won policy should be treated in the plan, including the beneficiary question and whether it solves the liquidity problem.
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The policy is already inside the estate for tax purposes because Yoo paid the premiums and was the insured; naming the son as beneficiary does not remove it from the tax base. It is taxed as part of the inheritance, with the beneficiary bearing the tax attributable to it.
Beneficiary design is therefore an allocation tool, not a tax-avoidance tool. Under the current will, the son gets the shares and the policy proceeds - the liquid assets - while the daughter gets illiquid property and a tax bill. Redirecting the beneficiary to the daughter, or to the wife, equalises what the will made unequal, and since the proceeds are already taxed in the estate it does not create a separate gift problem the way third-party premium payments would.
It does not solve the liquidity problem. If the tax is roughly 1.2–1.3 billion KRW and the only liquid pool is 300 million of policy proceeds plus a 300 million deposit, the estate is short by more than half. Real options: increase cover while Yoo is still insurable, use the statutory instalment payment of the inheritance tax over up to ten years with acceptable security, or begin the lifetime transfer now so the estate that reaches the tax office is smaller. The daughter should also be told plainly that she may have to sell a building, and when.