When you create an estate plan, you help ensure that the people you love will inherit your assets when you die. Careful planning can maximize what resources you leave for others and minimize the liabilities your estate or its beneficiary incur.
Many people planning their estates in Hawaii could lose a substantial portion of their intended legacy to estate taxes. Estate taxes apply to the value of the property that someone leaves behind when they die and can reduce what beneficiaries ultimately receive, as the executor has to pay those taxes before distributing any property.
Have you considered how estate taxes might affect your loved ones after you die?
You may have to worry about both state and federal estate taxes
Hawaii is one of a small number of states that assesses its own estate tax. Once the total value of your estate reaches $5.5 million, it is subject to state estate taxes. The top rate for estate taxes in Hawaii is 20% of the estate’s value, in addition to any federal estate tax liability.
If your estate is large enough to incur federal estate taxes, you could lose more than half of its value just in taxes alone. Currently, your estate must be worth more than $11.7 million to trigger federal estate taxes. The estates that do qualify stand to lose a lot without carefully planning, as the federal estate tax has a top tax rate of 40%. The greater the value of your estate, the higher the tax rate that applies to it.
How do you plan for estate taxes?
Those who own businesses or real estate are at higher-than-average risk of triggering estate taxes after they die. There are numerous ways for people to plan ahead and minimize those taxes.
Strategic gifts to family members can be one approach. Moving major assets into a trust so that they aren’t technically part of your estate is another method. Proper succession planning for your business or updated titled documents for your home could reduce your risk of estate taxes affecting your legacy.
Learning about the challenges of a high-asset estate going through the Hawaiian probate process can help you plan to maximize what you leave for the people you love.