Rhonda Fosbinder, with the help of the knowledgeable and compassionate Island Legal estate planning team, can guide you through the maze of estate planning choices, and support you and your family in transferring assets after the death of a loved one.
Whether reviewing estate planning you have done yourself, updating an existing plan, or starting from scratch, we have the extensive experience and depth of knowledge to help you make the right choices for your needs.
Estate planning is a process. It involves people – your family, other individuals and in many cases charitable organizations of your choice. It also involves your assets and all the various forms of ownership and title that those assets may take.
As you plan your estate, you will consider:
How your assets will be managed for your benefit if you are unable to do so
When certain assets will be transferred to others, either during your lifetime, at your death, or sometime after your death
To whom those assets will pass
Estate planning also addresses your welfare and needs, planning for your own personal and health care if you are no longer able to care for yourself. Like many people, you may at first think that estate planning is simply the writing of a will. But it encompasses much more. As you will see, estate planning may involve financial, tax, medical and business planning. A will is one part of that planning process, but other documents are needed to fully address your estate planning needs. The purpose of this pamphlet is to summarize the estate planning process and how it can address and meet your goals and objectives.
As you consider it further, you will realize that estate planning is a dynamic process. Just as people and assets and laws change, it may well be necessary to adjust your estate plan every so often to reflect those changes.
In starting to consider your estate plan, you should ask yourself the following questions:
What are my assets and what is their approximate value?
Whom do I want to receive those assets – and when?
Who should manage those assets if I cannot, either during my lifetime or after my death?
Who should have the responsibility for the care of my minor children if I become incapacitated or die?
If I cannot take care of myself, who should make decisions on my behalf concerning my care and welfare?
With tentative answers to these questions, you are ready to seek the advice and services of a qualified lawyer who will discuss with you the various documents which can comprise your estate plan and will provide advice concerning such issues as title to assets, taxes, and the prudent management of your estate.
Whatever the size of your estate, you should designate the person who, in the event of your incapacity, will have the responsibility for the management of your assets and your care, including the authority to make health care decisions on your behalf. How that is accomplished is discussed below in this pamphlet.
If your estate is small in value, you may focus simply upon who is to receive your assets after your death and who should be in charge of its management and distribution. If your estate is larger, your lawyer will discuss with you not only who is to receive your assets and when, but also various ways to preserve your assets for your beneficiaries and to reduce or postpone the amount of estate tax which otherwise might be payable on your death.
If one does no planning, then state law provides for the court appointment of persons to take responsibility for your personal care and assets. Each state also provides for the distribution of assets in your name to your heirs pursuant to a set of rules to be followed if you die without a will; this is known as “intestate succession.” Contrary to popular myth, if you die without a will, everything does not automatically go to the state. Your relatives, no matter how remote, and in some cases the relatives of your spouse, will have priority in inheritance ahead of the state. Nonetheless, they may not be the people you would want to inherit from you; therefore, a will is the preferable approach.
Your estate consists of all property or interests in property which you own. The simplest examples are those assets which are in your name alone, such as a bank account, real estate, stocks and bonds, and furniture, furnishings and jewelry.
You may also hold property in many forms of title other than in your name alone. Joint tenancy is a common form of ownership which takes assets away from control by will or living trust. Beneficiary designations on securities accounts and bank accounts are alternatives which must be carefully considered as well. Finally, assets which have beneficiary designations, such as life insurance, IRAs, qualified retirement plans and some annuities are very important parts of your estate which require careful coordination with your other assets in developing your estate plan.
The value of your estate is equal to the “fair market value” of each asset that you own, minus your debts including a mortgage on your home or a loan on your car.
The value of your estate is important in determining whether, and to what extent, your estate will be subject to estate taxes upon your death. Planning for the resources needed to meet that obligation at your death is another important part of the estate planning process.
A will is a traditional legal document which is effective only at your death to
Name individuals (or charitable organizations) to receive your assets upon your death (either by outright gift or in trust)
Nominate an executor, appointed and supervised by the probate court, to manage your estate, pay debts and expenses, pay taxes, and distribute your estate in an accountable manner and in accordance with your will
Nominate the guardians of the person and estate of your minor children, to care and provide for your minor children
Assets or interests in property in your name alone at your death will be subject to your will and subject to the administration of the probate court, generally in the county where you reside at your death.
A revocable living trust is also commonly referred to as a revocable inter vivos trust, a grantor trust or, simply, a living trust. A living trust may be amended or revoked by the person creating it (commonly known as a “trustor,” “grantor,” or “settlor”) at any time during the trustor’s lifetime, as long as the trustor is competent.
A trust is a written agreement between the individual creating the trust and the person or institution named to manage the assets held in the trust (the “trustee.”) Use of a revocable living trust avoids probate, and provides a “private” means of administration and distribution of your estate in the event of your incapacity or death. In many cases, it is appropriate for you to be the initial trustee of your living trust, until management assistance is anticipated or required, at which point your trust should designate an individual or bank or trust company to act in your place. The terms of the trust become irrevocable upon the trustor’s death. Because the trust contains provisions which provide for the distribution of your assets on and after your death, the trust acts as a substitute for your will, and eliminates the need for the probate of your will with respect to those assets which were held in your living trust at your death.
You should execute a will even if you have a living trust. That will is usually a “pour over” will which provides for the transfer of any assets held in your name at your death to the trustee of your living trust, so that those assets may be distributed in accordance with your wishes as set forth in your living trust.
There are many other types of trusts that may or may not be appropriate in particular situations, such as special needs trusts, irrevocable life insurance trusts, or charitable trusts, for example. However, the most common type of trust is the revocable living trust, most commonly used for probate avoidance and tax planning.
Probate is the court-supervised process developed under state law which has as its goal the transfer of your assets at your death to the beneficiaries set forth in your will, and in the manner prescribed by your will. It also provides for the relatively quick determination of valid claims of any creditors who have claims against your assets at your death. At the beginning of a probate administration, a petition is filed with the court, usually by the person or institution named in your will as executor. After notice is given, and a hearing is held, your will is admitted to probate and an executor is appointed. If you die “intestate” (that is, without a will), your estate is still subject to probate court administration and the person appointed by the court to handle your estate is known as the “administrator.”
If the assets in your name alone at your death do not include an interest in real estate and have a total value of less than $100,000, then generally the beneficiaries under your will may follow a statutory procedure to effect the transfer of those assets pursuant to your will, subject to your debts and expenses, without a formal court-supervised probate administration.
The advantages and disadvantages of a probate proceeding should be discussed thoroughly with your estate planning lawyer.
Once you have determined who should receive your assets at your death, your estate planning lawyer can help you clarify and appropriately identify your beneficiaries. For instance, it is most important to clearly identify by correct name any charitable organizations you wish to provide for; many have similar names and in some families, individuals have similar or even identical names.
It is also important for you to consider alternative distributions of assets in the event that your primary beneficiary does not survive you.
As for beneficiaries who by reason of age or other infirmity may not be able to handle assets distributed to them outright, trusts for their benefit may be created under your will or living trust.
After your death, the executor of your will and the trustee of your living trust serve almost identical functions. Both are responsible for ensuring that your wishes, as set forth in your will or living trust, are implemented. Although your executor is generally subject to direct court supervision, both the executor and the trustee have similar fiduciary responsibilities. The trustee of your living trust may assume responsibilities under that document while you are living. While you may act as the initial trustee of your living trust, if you become incapable of functioning as a trustee, the designated successor trustee will then step in to manage your assets for your benefit. An executor or trustee may be a spouse, adult children, other relatives, family friends, business associates or a professional fiduciary such as a bank. You should discuss your choice with your estate planning lawyer. There are a number of issues to consider. For example, will the appointment of one of your adult children cause undue stress in his or her relations with siblings? What conflicts of interest are created if a business associate or partner is named as your executor or trustee? Will the person named as executor or successor trustee have the time, organizational ability, and experience to do the job effectively?
A minor child is a child under 18 years of age. If both parents are deceased, a minor child is not legally qualified under California law to care for himself or herself. In your will, therefore, you should nominate a guardian of the person of your minor children to supervise that child and be responsible for his or her care until the child is 18 years old.
Such a nomination can avoid a “tug of war” between well-meaning family members and others if a guardian is required.
A minor is also not legally qualified to manage his or her own property. Assets transferred outright to a minor must be held for the minor’s benefit by a guardian of the child’s estate, until the child attains 18 years of age. You should nominate such a guardian in your will as well. In providing for minor children in your estate plan, you should consider the use of a trust for the child’s benefit, to be held, administered and distributed for the child’s benefit until the child is at least 18 years old or of some other age as you may decide. You may also consider a custodian account under the California Uniform Transfers to Minors Act as an alternative in making specific gifts to minors.
Estate tax laws change frequently. Presently, an estate tax will be imposed in Hawaii on any individual gross estates worth over $5.49 million. Other states such as Washington and Oregon impose an estate tax on non-residents who own property in those states but have much smaller gross estates, so if you own property outside of the state of Hawaii, the attorney will need to assist you with any estate tax considerations for those assets.
Under current federal tax laws, each individual who is a U.S. citizen can leave up to $11.18 million dollars, including any gifts made during their lifetime, to beneficiaries without the imposition of an estate tax. Assets left to a surviving U.S. citizen spouse are not subject to federal estate tax, and with the filing of proper estate tax returns, the surviving spouse can actually double his or her exempt amount by claiming the unused tax credit of the deceased spouse. How to pass on your assets to a surviving spouse, with our without protections from remarriage or creditors and taking into consideration capital gains and other tax concerns is an involved discussion to have with your attorney.
Even if no tax planning is undertaken right away, estate plans should always be reviewed as the tax laws change and one’s financial or family situations change.
The nature of your assets and how you hold title to those assets is a critical factor in the estate planning process. Before you change title to an asset, you should understand the tax and other consequences of any proposed changed. Your estate planning lawyer will be able to advise you.
It is important to seek competent legal advice when determining what character your property is and how the property should be titled. In some states, such as California, property is characterized as “community property” or “separate property”. Hawaii is a common law state, and does not assign the “community property” designation.
Joint Tenancy Property
Regardless of its source, if a property is held in joint tenancy, it will pass to the surviving joint tenant by operation of law upon the death of the first joint tenant. On the other hand, property held as community property or as tenants in common, will be subject to the will of a deceased owner.
Tenancy by the Entirety with right to survivorship
Married couples may hold title to their joint property in their names as “tenants by the entirety with right of survivorship.” Property held in that manner at the death of the first spouse is not affected by that spouse’s will, but passes instead directly to the surviving spouse. One advantage of holding title in this fashion is a degree of creditor protection – if one spouse is subject to a judgment or creditor claim, the property cannot be attached or taken by the creditor until the indebted spouse holds title solely in their name. If the indebted spouse dies first, then there can be no collection against that property at all and the claim is extinquished. Under current Hawaii law, it is now possible for a married couple to hold title to property in their joint revocable living trust, and still receive the benefits of tenancy by the entirety, if certain requirements are met.
Tenants in Common
Holding property as tenants in common allows for each party to hold a share in the property that may be passed on in the party’s will or trust upon their death, rather than going directly to the surviving joint tenants. When property is held by multiple parties, except husband and wife as tenant by the entirety (as dicussed above), the property is subject to liability claims against each owner. In other words, if a 1% owner is sued and a judgement is entered, the entire property could be attached and sold to satisfy the judgment against that owner.
Families often want to “gift” their homes to other family members for various reasons. While gifting can be a useful estate planning tool, the consequences of making such gifts, including exposure to liability and tax issues, must be carefully considered.
Uniform Real Property Transfer On Death Act
A relatively new law in Hawaii, you may want to create a deed that leaves your real property directly to a family member(s) upon your death without the need for probate. There are certain requirements for these deeds, so we do not recommend that you do this one yourself. In certain circumstances, this can be a relatively inexpensive and convenient way to avoid probate, without the need for a revocable living trust.
A number of assets are transferred at death by beneficiary designation, such as
Life insurance proceeds
Qualified or non-qualified retirement plans, including 401 (k) plans and IRAs
Certain “trustee” bank accounts
“Transfer on death” (or “TOD”) securities accounts
“Pay on death” (or “POD, assets, a common title on U.S. savings bonds
These beneficiary designations must be carefully coordinated with your overall estate plan, including any revocable living trust you establish. Your will does not govern the distribution of these assets.
If you do not make any arrangements in advance, a court-supervised conservatorship or guardianship proceedings may be required if you become incapacitated.
Conservatorships are proceedings which allow the court to appoint the person responsible for your care and for the management of your financial estate if you are unable to do so yourself. Guardianships are proceedings which allow the court to appoint the person responsible for your personal care if you are unable to do so yourself. Durable Powers of Attorney and Advanced Health Care Directives may avoid the need for these types of court proceedings.
You should, therefore, select the person or persons you wish to care for you and your estate in the event that you become incapable of managing your assets or providing for your own care, and designate them in a power of attorney and advanced health care directive.
With respect to the management of your assets, the trustee of your living trust will provide the necessary management of those assets held in trust. However, to deal with assets which may not have been transferred to your living trust prior to your incapacity or which you may receive after incapacity, a durable power of attorney for property management should be considered. In such a power, you appoint another individual (the “attorney-in-fact”) to make property management decisions on your behalf. The attorney-in-fact manages your assets and functions much as a conservator of your estate would function, but without court supervision. The authority of the attorney-in-fact to manage your assets ceases at your death.
An advanced health care directive/durable power of attorney for health care allows your attorney-in-fact to make health care decisions for you when you can no longer make them yourself. It may also contain statements of wishes concerning such matters as life sustaining treatment and other health care issues and instructions concerning organ donations, disposition of remains, and your funeral.
In some circumstances, planning ahead for the payment of long term care and/or government assistance may be indicated. With advance planning, there are many legitimate ways to accomplish these goals.
Can I Do It Myself?
It is possible for a person to do his or her own estate planning with forms or books obtained at a stationery or book store or from the State Bar. At the least, a review of such forms can be helpful in preparing you for doing estate planning. If you do review such materials and have any unanswered questions, however, you should seek professional help. Oftentimes the “do-it-yourself” forms are incomplete or inadequate for your circumstances, and important planning issues may be overlooked.
Do I Need a Professional To Help?
If you do seek advice, wills and trusts are legal documents which should be prepared only by a qualified lawyer. However, many other professionals and business representatives may become involved in the estate planning process. For example, certified public accountants, life insurance salespersons, bank trust officers, financial planners, personnel managers and pension consultants often participate in the estate planning process. Within their areas of expertise, these professionals can assist you in planning your estate.