Estate planning in Hawaii involves a variety of methods to manage property and to provide for the smooth distribution of your property after death. It can minimize tax consequences and costs, help you plan for health concerns and funeral arrangements, and provide for the guardianship and financial support for your children.
Making a Will
A will is an instrument that establishes how you want your property distributed. It can be revoked or modified during your lifetime, because it only takes effect at your death. If you die intestate, or without a will, the state of Hawaii will appoint an administrator and distribute your assets according to the state’s succession laws, and this may not be as you intended.
A will should include the following:
- Property distribution
- A guardian or caretaker for your minor children
- Selection of an executor for your estate
- An alternate executor in case the first person you named predeceases you, is longer capable, or declines to serve
- Funeral arrangements
Probate is a process that determines the validity of a will, settles all claims on the estate, pays estate and other taxes, sells property to pay creditors and debts, and finally distributes the remaining assets to beneficiaries. In Hawaii, probate usually lasts several months, and certain variables can lengthen the time to several years.
You might not be able to avoid probate completely, even if you leave a will. This is particularly true with large estates. However, there are ways to dispose of assets during your lifetime and this helps avoid probate.
- Living trusts: These instruments hold title to assets. Naming yourself as trustee gives you the same power to control your assets as if you continued to own them yourself. You can name a successor trustee to take over if you become incapacitated.
- Joint ownership: Joint ownership of property with a right of survivorship allows title to automatically pass to the surviving joint owner when you die.
- Accounts with designated beneficiaries: Any property with a title can have a designated beneficiary. This includes bank accounts, real property, cars, and retirement accounts. A retirement account beneficiary can stretch distributions over a period of years to minimize tax consequences.
- Small estate exemption: Hawaii has a small estate exemption for estates valued under $100,000. It allows for summary administration if there is a will.
Financial Power of Attorney
This is a legal document that delegates the handling your personal business affairs during your lifetime. A durable power of attorney takes effect immediately and continues in full force and effect if you become incapacitated. It is revocable at any time as long as you're mentally capable, and it's revoked automatically when you die.
Also known as a health care directive, this document sets forth your wishes regarding life-prolonging health measures and other treatment if you become incapacitated.
Power of Attorney for Health Care
Consider a health care power of attorney to name someone to make health care decisions for you if you cannot.
Additional Planning Considerations
Most individuals should have some of the above plans for distributing their estates, but there are other considerations.
- Estate taxes: Only very large estates valued at $5.25 million or more are subject to estate taxes as of 2013. This number increases annually to adjust for inflation.
- Life Insurance: Life insurance provides a valuable financial cushion for your children or spouse. Creating a life insurance trust to purchase the policy avoids estate taxes. If you have other sources of benefits like a pension, group life insurance or a large IRA, an additional life insurance policy may be an unnecessary expense.
- Business Succession: Any business should have a prearranged method for distribution of interests when you die or retire. Corporations or family limited partnerships can ensure a smooth transfer to children or issue stock to minimize taxes.
- Pets: Pets cannot be named as beneficiaries, but you can establish a pet trust for their care. A pet trust can name a caretaker to receive payments or hold funds for your pet’s wellbeing.
Consult an Estate Planning Attorney
State and federal estate law is subject to frequent change. Consult a Hawaii estate planning attorney to ensure that your assets are protected and that tax consequences are minimized.