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Leaving a Legacy to Those That Matter Most
You've had a great life. You have a loving family and you've been successful in providing for their needs. You still have your health, and you've done well in saving for retirement. Preparing for the day when you pass away may seem like a waste of time.
On the contrary, creating as estate plan to prepare for the future can save you and your family from many headaches and heartaches in the future.
1. What is Estate Planning?
2. I've Got a Will. Is That Enough?
3. Do I have to pay Estate Taxes?
4. Can I minimize the Amount of Estate Tax I'll Owe?
5. How Do I Start Estate Planning?
What is Estate Planning?
Estate Planning is the process of preparing a strategy for transferring your assets at death. This includes your home, personal possessions, bank accounts, stocks, bonds, business, and other financial interests.
I've Got a Will. Is That Enough?
Having a will is good, but it's just the beginning of Estate Planning. You must, first and foremost, consider your goals as they pertain to your family and estate. You must also include smart tax planning, because estate taxes can significantly diminish the wealth you want to leave to your family. Keeping estate taxes as low as possible means more wealth to your family.
Do I Have to Pay Estate Taxes?
Both the Federal government and the State of Hawaii have the right to tax assets owned by a person when they die, before their heirs are permitted to use those assets. Federal estate taxes start at a statutory rate of 18%, and can go as high as 60%, depending on the size of your estate. You're looking at a sizable portion of your estate being withheld from your heirs.
Nine months after a person dies, estate taxes are due in cash payable to the Internal Revenue Service. The executor of your estate may be forced to auction a family heirloom, part with stocks you wanted the family to keep, liquidate business assets, sell property, or borrow money to pay estate taxes.
Can I Minimize the Amount of Estate Tax I'll Owe?
Definitely. Proper Estate Planning will help you identify and reach the goals you set for your estate. Most of all, it will help you to leave the kind of legacy you want to your family.
1. The Unified Credit Amount- This represents the amount of assets the Federal government allows each person to transfer to their heirs before being subject to taxation. This amount follows and increasing schedule:
| Year | Unified Credit Exemption |
| 2001 | $675,000 |
| 2002-2003 | $1,000,000 |
| 2004-2005 | $1,500,000 |
| 2006-2008 | $2,000,000 |
| 2009 | $3,500,000 |
| 2010 | Unlimited (tax repealed) |
| 2011 and beyond | $1,000,000 |
Note: Tax laws are subject to change (consult your Tax advisor)
2. Leaving the Estate to Your Spouse - A U.S. citizen can leave all assets to his or her spouse without having to pay federal estate taxes, as long as the spouse is also a U.S. Citizen. While this seems to be a good solution for minimizing estate taxes, leaving a sizable estate to your spouse can create even larger estate tax problems when your spouse dies.
3. Leaving the Estate to Your Children or Grandchildren - Federal estate tax applies to assets left to anyone other that your spouse if the amount exceeds the Unified Credit Amount. In addition, a Generation Skipping transfer tax may apply in the case of gifts to grandchildren.
4. Giving Away Assets During Your Lifetime - Giving away some of your assets during your lifetime may be a good idea. Remember, you must meet your own needs before giving away your assets. You should also keep in mind that you and your spouse can each give $10,000 adjusted for inflation) per year to each child, grandchild, or any other individual, with no federal gift tax. Giving larger amounts would count against your Unified Credit Amount.
5. Giving Assets to Charity - This can be a source of valuable tax deductions, and can be a useful part of your estate plan.
How do I Start Estate Planning?
Estate Planning can be a very complex job, and is not something to be taken lightly. First Hawaiian Bank can provide you with the expertise needed to properly guard your assets for the future.
A great way to start is to meet with one of our Estate Planning experts. They will help you identify your current situation, plan for future goals, develop a strategy for obtaining those goals, and assist you in implementing that plan.
