Scott A. Makuakane
Est8Planning Counsel LLLC
Estate Planning & Administration
Alakea Corporate Tower
1100 Alakea Street, Suite 2424
Honolulu, Hawaii 96813
Tel: (808) 587-8227
Federal Estate Tax Planning in Hawaii
The federal estate tax is in a state of flux. Congress just enacted a two-year “fix” that provides some pretty generous terms. The amount each of us can give away tax-free (if we die in 2011 or 2012) is $5 million—up from $3.5 million as of 2009. The estate tax rate for the next two years is 35%--down from 45% in 2009. That’s the good news. The bad news is that unless Congress and the President make these changes permanent, they will disappear at the end of 2012. At that time, we will revert to the rules that would have been in effect as of 2002: the exemption amount will be $1 million and the tax rate will be 55%. Ouch. But we have reason to hope that it will be too politically unpalatable to take away the current exemption and tax rate, and something like the current numbers will become permanent. (Until the next round of estate tax legislation, anyway.)
The Uncertain Estate Tax
This bizarre state of the law means that you – and your estate – may be at risk. It is absolutely imperative for you and your estate planning team to stay on top of the law in order to avoid a huge surprise for your beneficiaries down the line. If you ignore the available planning opportunities because you assume that estate tax will never be an issue for your estate, you could set your beneficiaries up for unexpected tax liability. If you know that your estate may be subject to tax, you can take a variety of steps now to soften (or maybe even avoid) the blow from the IRS.
Conventional Planning Doesn’t Work Any More
If your estate plan was created before 2011, there is a very slight chance it will work properly in light of the current state of the estate tax. The way we deal with planning for surviving spouses has changed dramatically, as has the way we plan for other beneficiaries. The language commonly used in wills and trusts to minimize estate tax liability is outdated to the point that sticking with your old documents could mean sticking your spouse and children with taxes that could have been avoided entirely.
If you are concerned about how your current estate plan may function during this time of uncertainty, we encourage you to schedule a consultation. Additionally, if you want to stay informed about legislative developments and how they may affect your estate planning strategies, be sure to re-visit this website often, subscribe to our monthly e-newsletter, and follow my blog.
Hawaii Estate Taxes
Not content to sit on the sidelines while Congress had all the fun, the Hawaii State Legislature enacted an estate tax in 2010. Because of the peculiarities of how this tax is calculated and imposed, a surviving spouse of someone who died with an outdated estate plan may end up with unexpected tax liability. The kind of language that has worked for literally decades to postpone all tax estate tax until both spouses are gone, no longer works. It is uncertain whether Hawaii will stick with its ill-conceived estate tax law, but don’t count on the State easily giving up a potential revenue source. Read more about it here.
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