Estate Planning

At Okura & Associates, we use a very personalized approach to estate planning. Instead of just handing out trusts to our clients, we learn about your personal concerns, your health, the nature of your family relationships, the stability of your children’s marriages, your investment habits, your charitable giving, the nature and value of your assets, your desires for continued control of your assets, and other important factors, and then come up with recommendations using various kinds of trusts or other tools of estate planning to determine with you what kind of estate plan best fits your individual situation.

When helping our clients with estate planning in Hawaii, we look for ways to protect assets from the following:

Estate and Gift Taxes
Probate
Nursing Home Costs
Conservatorship
Lawsuits and Creditors
Losses After Children (or Others) Inherit Your Assets

Estate And Gift Taxes

The estate tax and gift tax are primarily federal taxes collected by the IRS. At this time, there is no tax on gifts made during life under Hawaii State law, but there is an estate tax upon death under Hawaii law. The amount of net assets with which a person can die without having to pay an estate tax under Federal law is called the “applicable exclusion amount.” The applicable exclusion amount changes from year to year. The exemption from Hawaii State estate tax is set to be equivalent to the current Federal applicable exclusion amount in the year of death. Under current law, this is the amount with which a person can die tax-free:

Year	Applicable Exclusion Amount
2011	$5,000,000
2012	$5,120,000
2013	$5,250,000
2014	$5,340,000
2015	$5,430,000

*the Applicable Exclusion Amount is set at $5,000,000 for 2011 and is adjusted for inflation each year.

In addition, there is no estate tax on assets which are inherited by a charitable organization or a surviving spouse. However, if there is a risk that the surviving spouse might some day die with more than $5,000,000 of assets, it is generally not a good idea to leave all assets to the surviving spouse outright. A special trust can be set up which allows the surviving spouse to use assets of the deceased spouse without being taxed on those assets when the surviving spouse dies or an Estate Tax Return can be filed with an election made to pass the unused estate tax exemption from the deceased spouse to the surviving spouse.

If a person dies with more than $5,000,000 of taxable assets in 2011 and later years (adjusted for inflation), their estate will be subject to estate tax with a maximum federal tax rate of 40% and a maximum state tax rate of 16%.

The gift tax is a tax imposed on the donor (the giver) of gifts. You may give as much as $14,000 of gifts tax free to any number of persons in the year 2013. This is called the “gift tax annual exclusion.” Any gifts to an individual in a calendar year greater than the gift tax annual exclusion are called “taxable gifts.” A gift tax return must be filed by April 15th of the following year to report taxable gifts. However, in your lifetime, you may give as much as $5,000,000 of taxable gifts without paying a gift tax. Upon death, the amount of taxable gifts made during life is added to net assets owned at death to see if an estate tax is owed. In other words, you may give as much as $5,000,000 of taxable gifts during your lifetime without paying a gift tax, but those taxable gifts decrease the amount with which you can die tax free.

Protecting Against Estate And Gift Taxes

At Okura & Associates, we use various estate planning tools to protect against estate and gift taxes. For a married couple who expect to have more than $5,000,000 at death, we may use revocable trusts which take advantage of each person’s applicable exclusion amount. These are sometimes called “A-B trusts” or “credit shelter trusts.” With such trusts, even if the applicable exclusion amount is only $5,000,000, a married couple could die with up to $10,000,000 tax free. For clients with enough assets to have an estate tax problem, we may explore the possibility of using more sophisticated techniques such as forming a Family Limited Partnership or Limited Liability Company (LLC), recapitalization of corporate stock into voting and non-voting shares, taking advantage of valuation discounts, charitable remainder trusts or charitable lead trusts, irrevocable life insurance trusts, using a tax-free installment sale of assets to a grantor trust, and gifting of assets during life. Everything is tailored to your personal concerns and desires.

This written advice was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)

The contents of this website are for general information only. The facts of your case may change the advice given. Do not rely on the information in this website without consulting an estate planning specialist.

Probate In Hawaii

For an explanation of probate in Hawaii, please go to our Probate page.

Protecting Against Probate In Hawaii

A Revocable Living Trust is often used to avoid probate. It allows you to have complete ownership and control over your assets. When you die, your assets go to the persons named in your trust, without probate. For a married couple, separate Revocable Living Trusts can also help to reduce estate taxes.

The problem with a Revocable Living Trust is that it does not protect your assets from nursing home costs. In fact, if your home is in a Revocable Living Trust, you cannot qualify for Medicaid for nursing home costs until you take the home out of the trust. Then the government may put a Medicaid lien on your home. For the elderly, instead of a Revocable Living Trust, Okura & Associates often recommends transferring the home property to your children, but keeping a “life estate,” which is the right to keep living in the home. This technique protects your home from both probate and nursing home costs.

At Okura & Associates, we do not automatically recommend Revocable Living Trusts to our clients. We analyze your entire situation, including the value of your estate, whether you intend to live in your residence for the rest of your life, whether you have long term care insurance and the benefit amounts of such insurance, whether you have an adult child living in the home with you, and other important factors, before recommending whether you should have a Revocable Living Trust, or use some other method of avoiding probate. We customize the probate avoidance plan according to your particular situation.

Protecting Assets From Nursing Home Costs In Hawaii

For an explanation of protecting assets from nursing home costs, please go to our Medicaid & Elder Law page.

Conservatorship

Conservatorship is a court proceeding used when a person who owns property or other assets becomes unable to handle his or her own financial affairs. A person usually becomes unable to handle financial affairs because of dementia, a serious stroke or other health problem or injury. If the incapacitated person does not have a Revocable Living Trust or Durable Power of Attorney permitting someone else to handle his assets for him, a conservatorship is required. A family member or friend will have to hire an attorney to petition the court to appoint a conservator. The conservator is often a family member. Once appointed by the court, the conservator can sign checks, contracts and other legal documents for the incapacitated person. The conservator is responsible for keeping track of the incapacitated person’s assets, and has to report to the court every one, two or three years, as ordered by the court, to account for every penny that was received or spent on behalf of the incapacitated person. A conservatorship is a lot of trouble. Your estate plan should be designed to avoid conservatorship.

Avoiding Conservatorship

Conservatorship can easily be avoided by having a good Revocable Living Trust and a good Durable Power of Attorney. If you became incapacitated, the successor trustee you name in your Revocable Living Trust will be able to manage your trust assets for you. The person named in your Durable Power of Attorney will be able to manage for you assets which are not in your trust. However, at least one major bank in Hawaii refuses to honor a Durable Power of Attorney which is more than 5 years old. Other banks refuse to commit in advance to honoring a Durable Power of Attorney. They wait until your agent actually tries to use the Durable Power of Attorney before they decide whether to honor the document. When you meet with us, if you are interested, we can discuss with you the policy of each bank and credit union where you have accounts as to whether they will honor your Durable Power of Attorney, and what you should do about it.

Losses After Children (Or Others) Inherit Your Assets

Most people doing estate planning focus on protecting assets to get them to their children or other loved ones with the least amount of loss. This is probably also the focus of most attorneys. At Okura & Associates, we focus not only on protecting assets from taxes, probate and nursing home costs, but we also focus on protecting the assets after your children inherit them. There are at least 3 risks that people often don’t think about: 1) If you leave your home or other assets to your child, and if your child later gets a divorce, there is a danger that your child’s divorcing spouse will try to claim some of that asset which you left as an inheritance for your own child. 2) If your child dies after inheriting your home or other assets, there is a good chance that the inheritance you left to your child will go to your child’s surviving spouse. It that surviving spouse later remarries, then dies, there is a risk that the inheritance you left to your own son or daughter will end up going to that stranger who is the new spouse of your son-in-law or daughter-in-law, instead of going to your own grandchildren! We see this happen quite often. 3) If your child inherits assets from you, works hard, saves, and invests wisely, there is a chance that your child will have an estate tax problem when your child dies in the future. All of the assets you leave to your child will increase your child’s estate tax problem, because the more your child owns at death, the greater will be the estate tax.

Protecting The Inheritance Of Your Children Or Other Loved Ones

At Okura & Associates we discuss these risks that most people never think of, and suggest possible solutions. If you are interested, we can show you how to protect the inheritance you leave to your children (or other loved ones) from your child’s divorce, from going to someone other than your grandchildren, and from estate taxes when your child dies.

Lawsuits and Creditors

For an explanation of protecting assets from Lawsuits and Creditors, please go to our Asset Protection page.