Estate Planning Forms
Click on a link below to see the form or checklist in PDF format.
- Estate Planning Checklist*
- Advance Health-Care Directive: Form
- General Power of Attorney: Form
*Note: Our office requires both Part One and Part Two of the Estate Planning Checklist be completed by the client.
The following is a general explanation of basic estate planning terms and concepts.
Probate is the way the Hawaii courts pass ownership of property from a person who dies to his heirs. The Personal Representative (Executor) must locate and inventory all assets and debts and pay all bills. The Hawaii probate procedure changed in 1997 and changed how probates are handled. For estates in which there are no disputes with heirs or with creditors of the decedent, the probate can be done in a much simpler way than in the past. In those situations, the difficulty and cost of probate should be reduced.
Estates in which disputes arise with heirs or creditors may still end up with the old formal probate proceedings. For those probates, the Personal Representative must show the court exactly what he has collected and what he spent from the probate assets. To do the work, most personal representatives will need an attorney to handle the paperwork and an accountant to handle the income tax returns.
The law allows both attorney and personal representative fees. The fee standard will be "reasonable fees" as found by the probate court.
Not all property is subject to probate. Jointly owned property will pass automatically to the surviving owner if one of the joint owners dies. Life insurance proceeds are not considered property of the insured after his death for probate purposes.
If you do not have a will, the Hawaii inheritance laws have a set of rules about who inherit your property. The rights are subject to the rights of your surviving spouses to an elective share (discussed elsewhere). If you have a spouse, no descendants (children, grandchildren, etc.) and no living parents, your spouse inherits everything. Your spouse also inherits everything if the only descendants you and your spouse have are the descendants of both of you. In all other cases, your spouse gets a portion depending on who else survives you. If you do not wish to have these rules apply to your estate, you need to give different directions in either a trust or Will.
Hawaii's Revised Uniform Probate Code says that a surviving spouse has the right to elect (choose) from the "augmented estate" of the deceased spouse. The maximum election is a percentage of the augmented estate. The percentage for a marriage of 15 years or more is 50 percent, with lesser percentage for shorter marriages.
The augmented estate includes property in the decedent's probate estate, property in decedent's revocable trust, life insurance proceeds of a policy owned by decedent, property passing to the surviving spouse, the decedent's fractional interest in joint property not passing to the surviving spouse, property given away within two years of death (with some exceptions). If the elective share is more than what the surviving spouse is otherwise receiving, the spouse can make the election. The electing spouse is entitled to recover against property in the augmented estate.
The elective share rights are also preserved for disabled spouses . In that case, a legal guardian, would exercise the rights.
Spouses may give up their rights to augmented estates. For inherited property, a spouse may keep the property outside the augmented estate by keeping that property separate from other property.
Federal and State Estate Taxes
The Internal Revenue Code has a tax on the net value of property in the taxable estate of a decedent (federal estate tax). There are deductions from the taxable estate for items such as debts or mortgages and for transfers to the surviving spouse. There is also an exclusion from the federal estate and gift taxes which can offset estate or gift taxes. In January 2013, Congress passed a new estate and gift tax law, setting the exclusion (sometimes referred to as the “unified credit”) at $5,250,000 for 2013, to increase with inflation every subsequent year. Estate assets not excluded are taxed at 40 percent. When a spouse dies, the surviving spouse may use the unused unified credit of the deceased spouse, with certain limitations. Taxable estate includes all probate assets of the decedent, one-half or more of the value of all joint property owned between spouses, and the face value of life insurance proceeds. The Internal Revenue Code also has a tax on generation skipping transfers (the “GST tax”) which is besides the federal estate tax. The GST tax applies to transfers which are made to a member of a “skip generation.” Such members include recipients related to the transferring person or trust who are over one generation younger than the transferring person, or for unrelated recipients, who are more than 37and 1⁄2 years younger than the transferring person. The transfer can be directly or by occurrence of an event in the future which causes the skip generation recipient to receive money or property. There is an exemption for the GST tax equal to the amount for the exclusion from federal estate and gift taxes. Once the GST tax applies, the rate is equal to the highest rate for the federal estate and gift tax.
Changes to the Hawaii Estate Tax law became effective in July 2012. Under the revised law, the Hawaii Estate Tax rates were changed so the highest rate is 15 percent. For Hawaii residents, the Hawaii Estate Tax exclusion amount was changed to be the same as the federal estate tax exclusion when the taxpayer dies. For none Hawaii residents, the exclusion is a fraction of the value of the property subject to the Hawaii Estate Tax as compared to the value of all of the none resident’s property. The changes also created a Hawaii GST tax for the first time. For Hawaii residents, the exclusion for the GST tax is the same as the exclusion for the Hawaii Estate Tax and for none residents, that exclusion is pro- rated like the Hawaii Estate Tax exclusion for none residents. The rate for the Hawaii GST tax is the top rate for the Hawaii Estate Tax (15 percent). Other states have state estate taxes and the exemptions in those states may differ from the Hawaii exemption. Hawaii residents who own property in other states must determine the state estate tax situation under both Hawaii estate tax law and the law of the other states in which their properties are located.
The federal and Hawaii estate tax rules are very different for non resident aliens. Those rules are beyond the scope of this summary.
Revocable Living Trusts
These trusts (created separately from wills) can help in avoiding probate. If a revocable living trust is used, most provisions that could be in your will would be put into a trust. However, since some assets may not be put into the trust before you pass away and may go into probate, a will must still be made which makes the trust the heir of all probate property so that the trust controls all property.
Estate Tax Planning
If you think that the taxable estate may exceed the federal or State exemptions or that the exemption will be reduced in the future, you should consider means by which the estate tax can be reduced. Through appropriate trusts (in wills or in revocable living trusts) the estate tax can be reduced while providing for the surviving spouse.
Although we try to minimize the taxable estate for federal estate tax, you should be aware that there is a special rule that increases the income tax basis of property in a decedent's taxable estate to fair market values at date of death. For assets which have very low tax basis, this will make a big difference in how much income tax will be owed if the property is sold. In deciding what should be included in the taxable estate, the tax basis increase should be considered.
Wills and Trusts, Generally
A will only covers the property in your probate estate. It does not cover property given away or transferred before death, nor does it affect joint property or life insurance proceeds.
A trust can be created during your lifetime by a written document called a Trust Agreement. A trust can also be put into a will, but that trust will not exist until the will is admitted into probate. Since no one can predict when he or she will pass away, it is important that both husband and wife have wills or trusts set up which will carry out their wishes when they pass away. While a husband and wife may not be able to agree on a consistent plan of how to leave the property to their heirs, most couples usually agree on what should be done with their property so that their wills or trusts are very similar to each other.
The cost savings achieved by using a revocable trust to avoid probate has been reduced to some extent because the Hawaii probate procedure in a decedent’s estate with no disputes between heirs or creditors was simplified.
However, the probate procedural changes do not eliminate the need for comprehensive estate planning. Clear directions on who inherits your property, who should administer the estate and provisions for trusts for heirs who cannot handle the property themselves all should be in either a will or a revocable trust. For larger estates, tax planning is most effective if done early. For larger estates this will require splitting up assets between spouses and creating trusts (whether in revocable living trust form) or in wills. Your specific needs and those of your family must be considered and provided for.
Revocable trusts can also provide management of your assets if you become disabled before you die. If you own property in other states or countries, putting assets into trust before you die can avoid multiple probates in each of the states in which you own property. These factors should also be considered in whether you use a revocable trust or put the provisions into a Will.
The most common practice for Hawaii residents who create revocable trusts has been for the husband to create a revocable trust and the wife to create a revocable trust. It is possible to use a joint trust form instead in which the husband and wife sign one trust document to carry out their wishes. The joint trust is especially appropriate when the married couple has community property from the mainland and wishes to preserve the unique characteristics of community property. For Hawaii residents, a joint trust can also be used with certain modifications to the form to avoid some problems with the federal gift tax. Joint trusts can be drafted to meet the wishes of the couple even if the plan of disposition of the trust assets is different for the husband and wife.
Funding the Revocable Living Trusts. Besides creating the trusts, you must decide how and when you wish to fund the trusts. To avoid probate through a revocable trust, most assets which would otherwise be subject to probate should be transferred into the trust. Sometimes, the cost of transferring assets into a revocable trust can approach the cost of creating the trust itself.
To take full advantage of the exclusion from estate or gift tax available to both husband and wife, each of the trusts for the spouses should have enough assets to use the full amount of the estate tax exclusion (unified credit).
Estate Planning Techniques
Be aware that gifts using the federal annual gift tax exclusions can also reduce your taxable estate by passing property to your family during your lifetimes. There is a federal gift tax (Hawaii does not have a state gift tax). Each of you has a $14,000 per donee (person receiving the gift) annual exclusion from the federal gift tax, so over a period of a few years, substantial property can be passed to your children with no gift tax or reduction in the exclusion from the federal estate tax. The exclusion will cover lifetime gifts up to $5,250,000 in 2013 (the exclusion available on death against the estate tax will be reduced by exclusions used for lifetime gifts). In a gift, the income tax basis in the property being given does not change, so your children will have whatever basis you had in the property. Both Congress and the Hawaii legislature can change the estate tax law at any time .
While you should consider the effects of the federal and state estate tax, that is usually not the only or most important part of your estate plan. The needs of the surviving spouse and family are usually the most important factors. You will have to decide how much you need to leave to the surviving spouse free and clear of the trust. That can be done by leaving property as jointly owned property or by leaving the surviving spouse with rights to obtain some or all of the trust assets.
Please remember that one half of jointly owned property (not community property) would be in the taxable estate of the first spouse to pass away (with a corresponding increase in basis of one half the property), but since all of that property ends up with the surviving spouse, all of the joint property will be in the surviving spouse's taxable estate on death.
Your residence presents some special considerations. If you transfer your residence in the trusts, we would provide that each of you would be entitled to live in the residence so long as you wish without paying rent. Many of our clients do not feel comfortable in changing the ownership of their home. However, if you do not transfer the residence into the trust, the surviving spouse should place the residence in his or her trust when the first spouse passes away to avoid probate after the death of the surviving spouse.
Payment of Liabilities and Taxes
Your Last Will and Testament (and your Revocable Trust if you create one) should provide for what assets are used to pay your liabilities, including taxes, when you pass away. If you wish and if your estate has enough assets, some assets subject to mortgages or which create tax liability can be passed to beneficiaries using other assets to pay those liabilities. This is common for specific bequests. You can also direct that any assets passing to beneficiaries will pass subject to liabilities or to the taxes attributable to those assets. To decide on how you wish to handle the payments, you will need to determine what assets will be available to pay your liabilities. If your estate is large enough to involve estate taxes, the taxes will be among the more significant liabilities. Life insurance, IRAs and pension plans create some special problems which need to be considered.
Advanced Health Care Directives
As of 1999, the Hawaii legislature replaced the old durable health care power of attorney, living will and organ donations forms into the new form called an advance health care directive (AHCD). Although there are some differences in the forms, the basic contents of the older documents are in the AHCD. A living will is a written instruction from you to your doctors and health care providers (hospital, clinic, or long term care facility) that can tell them that if you have a condition from which you will die, that they are not to artificially prolong your life. This can be modified to meet your wishes. A power of attorney is a document by which you give someone else the power to act for you. Powers of attorney can be made to allow another person to do almost anything that you could do yourself. Powers of attorney can be made so they continue even if you become legally incompetent (durable powers of attorney). A special form of durable power of attorney is the medical power of attorney in the AHCD by which someone can decide about your medical care and treatment if you can no longer do so. Powers of attorney can be as limited as you want and can be made to last as long as you want (up to the time you pass away). Powers of attorney can be very useful, but you should be very careful in giving such powers since they can be misused if the wrong person holds the power.
Because of the possibility you may have problems with creditors in the future, be aware that Hawaii has a form of joint ownership called tenancy by the entirety which provides some creditor protection. A tenancy by the entirety is ownership that can only exist between a husband and wife. A creditor of only one of the spouses cannot recover on a judgment against tenancy by the entirety property as long as that tenancy exists. It is now possible to preserve tenancy by the entirety ownership for a property even if the property is transferred to the trust. To do so, we need to add specific language so it is important to identify all property that is owned as tenants by the entirety. However, a tenancy by the entirety is not perfect protection against this type of liability and it is not a substitute for liability insurance. The tenancy ends automatically when the marriage ends (whether by death or divorce) so if the non-liable spouse dies first, the creditor can recover against the entire property. Adequate liability insurance, automobile and homeowner's, is needed to protect you and your assets from the effects of a serious personal injury you may cause. The amount and type of coverage should be discussed with your insurance broker.
If one spouse passes away, the survivor should remember that there are several matters that should be examined soon after the death. Among these matters is a review of the taxable estate to see if some adjustments must be made in light of circumstances after the death. For estate tax purposes, one of these matters is whether the spouse or children should file disclaimers to shift property interests. Often, this is unnecessary, but the disclaimer must be reported to IRS within certain time limits to qualify, so it is better to attend to these matters as soon as possible.
The tax laws have changed significantly over the years, so you may wish to check to see if changes in your estate planning are needed because of such changes. Your estate plan should be reviewed periodically to see how these changes have affected your plans.