If moving to a continental United States estate friendly State isn't for you, Hawaii might be. With no inheritance tax or tax on personal property, descendents can own the priciest of vehicles without property tax provided they aren't classified as 'real property'. Keep in mind Hawaii does have state income tax up to 8.5% (1) meaning inherited annuities that aren't tax protected may be subject to income tax.
Hawaii does have an estate tax aka. Death tax that is linked to the federal estate tax which will be non existent in 2010 (7). That said, if the estate tax law is not re-legislated by 2011, an estate tax may once again exist for estates valued over $1 million or higher. The remainder of this article will discuss estate planning in Hawaii in terms of 1) ease of estate distribution, 2) pros and cons of estate planning in Hawaii and 3) useful procedure(s) in estate planning.
Ease of estate distribution
Estate distribution takes place following the death of the Estate's original owner. How this takes place can be affected considerably by 1) how assets are owned within Hawaii, and 2) what financial instruments and/or assets the estate is comprised of.
Moreover, assets that are already owned by the beneficiary prior to probate or action by a trustee executor don't need to be distributed as an estate in Hawaii. The following techniques may prove helpful in bypassing some of the more lengthy procedures of an estate's administration such as estate tax filing, probate, private management etc.
• Joint ownership of real property and personal property (4)
• Gifts from the estate less than $1 million in taxable gifts (10)
• Property location in Hawaii instead of many States (5)
• Spouse beneficiaries receive estates tax-free (6)
• Use of asset protecting trust (APT trust) or other beneficial trusts (11)
The following legal website suggests several options for estate planning in Hawaii that bypass the need for a Will in addition to additional estate planning tips.
With joint ownership with rights of survivorship, property passes directly to the survivor even if that person is not related. This avoids transfer of assets and the death tax. Additionally, if property is owned and/or registered in Hawaii instead of multiple States, the possibility of out of State estate axes being imposed on that property are reduced and legal complications bypassed.
Pros and cons of estate planning in Hawaii
The advantages of planning an estate in Hawaii are perhaps less tangible than in some other estates. If scenery, climate and a relatively stable housing market count as benefits along with some tax free property ownership and no tax on inherited money, then there are some.
However, cost of living and income tax in Hawaii is high making owning the proceeds of an estate or an estate that hasn't been passed on potentially high maintenance in terms of costs.
Furthermore, having an estate in excess of the Federal and/or State Minimum value requires the filing of Estate tax returns that involve additional bureaucracy. For Federal returns an IRS form 706 (8) is required and for Hawaii Department of Taxation estate returnsM6 and/or M6 GS are required. (9)
Estate planning procedures
To plan an estate in Hawaii starting from the beginning of the process helps. For example, the following process illustrates how one might go about thinking about an estate plan.
• List assets by type, value, account etc. then total estate worth
• Identify estate value lowering techniques as well as estate cost saving measures
• Verify asset distribution prior to creating legal documents
• Consult with an estate attorney, accountant, or financial planner if necessary
• Create Hawaii specific living Will (3), Trust(s), Power of Attorney if applicable
• Place assets in appropriate trust(s), increase insurance death benefit
• Convert assets to tax free financial instruments/assets
• Monitor estate, market developments and State laws for changes
In Hawaii, specific estate planning methods may prove cost effective when implemented in conjunction with Hawaii's and Federal estate law. For example, real property may be transferred to personal property and then that personal property may be registered as being jointly held with rights of survivorship in which case the property is not part of the estate's total value.
Since Hawaii has a high income tax, estate assets that could yield a high income such as non-insurance death benefit annuities, dividend income, estate property rental income may be reallocated into non-income bearing assets that can be sold or converted as needed.
Additional Hawaii estate planning resources
The following resources were used in compiling the above article and may be of additional assistance to estate planners, readers or others interested in learning about estate planning in Hawaii.
The content of this article does not replace nor does it intend to replace the advice of an attorney, accountant or any other professional involved with estate planning and is to be used at the readers own discretion. The author of this article assumes no responsibility or liability for the use of content within this article or the estates of said parties.
Sources:
1. http://www.bankrate.com/brm/itax/edit/state/profiles/state_tax_Haw.asp
2. https://www.fhb.com/ins-estate.htm
3. http://www.legalzoom.com/wills-state-requirements/hawaii-will.html
4. http://research.lawyers.com/Hawaii/Estate-Planning-in-Hawaii.html
5. http://library.findlaw.com/2001/Feb/1/127804.html
6. http://tinyurl.com/4fwp7cp
7. http://www.hawaiireporter.com
8. http://www.irs.gov/pub/irs-pdf/f706.pdf
9. http://www.state.hi.us/tax/a1_b3_4estate.htm
10.www.irs.gov/pub/irs-pdf/p950.pdf
11.http://www.rjmintz.com/appch9.html
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