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estate planning | Okura & Associates - Hawaii Estate Planning Attorneys

Tag Archive for 'estate planning'

2012 Estate Planning Update (January 2012)

Here is a 2012 update on important numbers used in Estate Planning and Medicaid Planning in Hawaii.

How much money and property can a person have at death without paying estate taxes?

Under a temporary federal law, $5,000,000 is tax free this year. From January 1, 2013, only $1,000,000 will be tax free.  There is a bill in Congress, introduced on November 17, 2011, called the “Sensible Estate Tax Act of 2011,” which proposes to reduce the exemption to $1,000,000 immediately. You can track this bill at http://www.govtrack.us/congress/bill.xpd?bill=h112-3467. There is also a Hawaii Estate Tax.  The State Tax Department is saying that $3,500,000 is tax-free.  The law is ambiguous.  It could be argued that the state exemption is meant to be the same as the federal exemption – $5,000,000.

How much can a person give away without paying a gift tax? You can give $13,000 each year to each person without having to report it to the IRS.  You can give any amount to a husband or wife who is a U.S. citizen without reporting to the IRS.  If you give more than $13,000 to any person in one year, then the amount over $13,000 is a “taxable gift.”  You have to file a gift tax return to report the gift, but for 2012, you can give up to $5,000,000 of taxable gifts in your lifetime without paying a gift tax.  This amount goes down to $1,000,000 in 2013. For the wealthy, now is the time to give.  If you give assets away, there will probably be a Medicaid penalty if you need nursing home care.  Do not give away assets (not even your home) without expert advice about the effect of both gift tax laws and Medicaid laws.

How much in assets can a husband and wife have and still qualify for Medicaid to pay nursing home costs for one of them? A husband and wife together can have $115,640 in assets and still have Medicaid pay for the nursing home costs for one of them. (The amount was $111,560 last year.) This $115,640 is in addition to the following exempt assets, which the government will not count: necessities such as clothing, furniture and appliances; motor vehicles; funeral or burial plans; one burial plot for each family member; one wedding ring and one engagement ring, and up to $786,000 of equity in a home. (The equity limit was $750,000 last year.)

If a person is not married, or if both husband and wife need nursing home help, how much in assets can each have and still qualify for Medicaid for nursing home costs? A single person can have $2,000; a married couple can have $4,000.

If you give away assets to your children, how long do you have to wait before you can qualify for Medicaid for nursing home costs without a penalty? The answer is 5 years.    However, this does not mean that you have to wait 5 years before getting Medicaid help.  There are ways to reduce or eliminate the penalty period.

If a person qualifies for Medicaid for nursing home costs, how much of the family income can the spouse keep? The spouse who is not in the nursing home (“community spouse”) can keep all of his or her own income (social security checks, pension checks, etc.).  If the income of the community spouse is less than $2,841 per month, the community spouse can also be given some of the income of the one in the nursing home to bring the community spouse’s income up to $2,841.  The one who is in the nursing home has to use the rest of his or her income towards nursing home costs, except for $50 a month, which can be kept.

When is a probate necessary? Probate is necessary in Hawaii if a person dies with real estate of any value, or other assets worth over $100,000, which are not in a revocable living trust, not in joint names with right of survivorship, and do not name a beneficiary.

© OKURA & ASSOCIATES, 2012




New Law: Transfer on Death Deed (October 2011)

NEW LAW:  TRANSFER ON DEATH DEED

Hawaii has a new law which allows real estate to go to a beneficiary when the owner dies, without having to go to court for probate. This new procedure requires a new kind of deed, called a “Transfer on Death Deed.” Governor Abercrombie signed Act 173, which creates this new law, on June 27, 2011. The law became effective on July 1, 2011. The law is called the Uniform Real Property Transfers on Death Act.

Let me explain how the law in Hawaii works for anyone who doesn’t have a Transfer on Death Deed. If a person dies owning any real estate in her name only, when she dies, there would have to be a probate proceeding in court before the persons named in the will could inherit. Probate usually takes about one year.  Sometimes it takes much longer. In the experience of our law firm, the attorney’s fees for handling a typical probate without complications can run between $3,000 and $6,500.  If the person dies with $100,000 or less, then the court can handle the probate as a “small estate” proceeding without an attorney. Still, the court charges 3% of the value of the property as a fee, and adds court costs and newspaper publication fees, and often takes as long as an attorney handling a probate case. Even if a person dies owning a tiny portion of land worth only a few hundred dollars, a probate or small estate proceeding is required before ownership can pass to the heirs.

Because of the time and expense caused by probate, many people use revocable living trusts to avoid probate. Others add a joint owner to the property to allow the joint owner to inherit without probate. Adding a person as a joint owner creates special problems, because then you are actually giving away half of the property at the time the joint owner is added.

Now, with the new Transfer on Death Deed, it is possible to avoid probate without a revocable trust and without adding a joint owner to the property. A Transfer on Death Deed names a beneficiary who will inherit the property upon death of the current owner.  It is similar to a “pay on death” bank account or credit union account, where upon your death, the money goes to the beneficiary you named. With a Transfer on Death Deed, you still own the property, you can still sell it or mortgage it, and you can change your beneficiary at any time. Yet, if you die, the property goes to your beneficiary without having to go to court for probate. To cancel or change a beneficiary, the legal document showing the change must be recorded in the Bureau of Conveyances in Honolulu before you die.

The Transfer on Death Deed could be a good idea for some people.  However, it does have some problems of which you need to be aware.  If you have or need an A-B Trust to protect assets from estate taxes, you should probably have your real estate in your trust. Having real estate go directly to a beneficiary could mess up the way the A-B Trust is supposed to work to protect assets from estate taxes. If you are old enough to start being concerned about nursing home costs, then I would not recommend a Transfer on Death Deed, because that kind of deed will not protect real estate from nursing home costs.  Instead, I would recommend transferring the property to an irrevocable trust, keeping a life estate in the property. Also, if you would like the property to be protected after your death in case your child gets a divorce or has enough assets to be taxed by the estate tax, I would recommend putting your property into a generation skipping trust, for asset protection.

The Transfer on Death Deed might be appropriate for someone with a small estate who is not concerned about nursing home costs.




Estate Planning Update (April 2011)

2011 ESTATE PLANNING UPDATE

By

Sanford K. Okura

 

Here is a 2011 update on important numbers used in Estate Planning and Medicaid Planning in Hawaii.

How much money and property can a person have at death without paying estate taxes?

Under a temporary federal law, $5,000,000 is tax free this year and next year.  From 2013, only $1,000,000 will be tax-free. The amount will probably be changed again in the next year or two.  There is now also a Hawaii Estate Tax.  The State Tax Department is saying that $3,500,000 is tax-free.  In my opinion, the law is ambiguous.  It could be argued that the state exemption is meant to be the same as the federal exemption – $5,000,000.  I will inform you in this column of further changes and clarifications.

How much can a person give away without paying a gift tax? You can give $13,000 each year to each person without having to report it to the IRS.  You can give any amount to a husband or wife who is a U.S. citizen without reporting to the IRS.  If you give more than $13,000 to any person in one year, then the amount over $13,000 is a “taxable gift.”  You have to file a gift tax return to report the gift, but for 2011 and 2012, you can give up to $5,000,000 of taxable gifts in your lifetime without paying a gift tax.  This amount goes down to $1,000,000 in 2013. For the wealthy, now is the time to give.  If you give assets away, there will probably be a Medicaid penalty if you need nursing home care.  Do not give away assets (not even your home) without expert advice about the effect of both gift tax laws and Medicaid laws.

How much in assets can a husband and wife have and still qualify for Medicaid to pay nursing home costs for one of them? A husband and wife together can have $111,560 in assets and still have Medicaid pay for the nursing home costs for one of them.  This $111,560 is in addition to the following exempt assets, which the government will not count: necessities such as clothing, furniture and appliances; motor vehicles; funeral or burial plans; one burial plot for each family member; one wedding ring and one engagement ring, and up to $750,000 of equity in a home.

If a person is not married, or if both husband and wife need nursing home help, how much in assets can each have and still qualify for Medicaid for nursing home costs? A single person can have $2,000; a married couple can have $4,000.

If you give away assets to your children, how long do you have to wait before you can qualify for Medicaid for nursing home costs without a penalty? The answer is 5 years.    However, this does not mean that you have to wait 5 years before getting Medicaid help.  There are ways to reduce or eliminate the penalty period.

If a person qualifies for Medicaid for nursing home costs, how much of the family income can the spouse keep? The spouse who is not in the nursing home (“community spouse”) can keep all of his or her own income (social security checks, pension checks, etc.).  If the income of the community spouse is less than $2,739 per month, the community spouse can also be given some of the income of the one in the nursing home to bring the community spouse’s income up to $2,739.  The one who is in the nursing home has to use the rest of his or her income towards nursing home costs, except for $50 a month, which can be kept.

When is a probate necessary? Probate is necessary if a person dies with real estate of any value in his name only or as a tenant in common.  With assets other than real estate, probate is necessary in Hawaii if a person dies with assets worth over $100,000 which are not in a revocable living trust or joint account, and do not name a beneficiary.




An Unusual Year for Tax Law (February 2010)

2010 – AN UNUSUAL YEAR FOR TAX LAW

There is no federal estate tax this year.  Since the State of Hawaii has no inheritance tax, Hawaii residents can die this year with any amount of assets and pay no death taxes at all.  This is only for the year 2010.  For someone dying in 2011 or later years, any assets not inherited by a spouse or a charitable organization will be taxed, starting at a tax rate of 41% from the first dollar over 1 million, and going up as high as 55% for amounts over 3 million dollars.

The strange law this year and next year is a result of the 2001 tax act.  The 2001 tax act was supposed to get rid of the estate tax.  The 2001 tax act provided that the amount exempt from estate taxes would be $1,000,000 in 2002 and 2003, $1,500,000 in 2004 and 2005, $2,000,000 in 2006, 2007 and 2008, $3,500,000 in 2009, with no estate tax at all in 2010.  However, the bill that passed Congress contained a “sunset clause.”  The sunset clause provided that unless Congress in the future voted to extend the law, this new tax law would expire after December 31, 2010.  Like Cinderella’s beautiful carriage turning back into a pumpkin, just after midnight on December 31, 2010, the tax law will go back to what it was in 2001, which was that only 1 million dollars is exempt from the estate tax.  Therefore, there is no estate tax, but only for this year.  Remember, however, that Congress and the President can change the law again at any time.

Another important change is in the law regarding the stepped up basis.  (See my October 2009 Estate Planning Insights column about the stepped up basis.  You can find a copy in my blog at www.okuralaw.com.)  The usual stepped up basis rules do not apply in 2010, but will again apply starting January 1, 2011.  The 2010 basis rules are called the “Modified Carry-over Basis” rules.  If a person dies in 2010, the tax basis in the property will be the lower of the basis before the person died, or the fair market value at date of death.  However, the executor can increase the basis of assets owned at death up to the lesser of fair market value or 1.3 million dollars, plus up to the lesser of fair market value or 3 million dollars for property passing to a surviving spouse.  To qualify for the increase in basis, the property has to be in the name of the person who dies, or in her revocable living trust.  Although some experts differ on this issue, it is my opinion that property in which a person dies in 2010 with a life estate will not get a step up in basis.

Another important tax change in 2010 is with Roth IRA conversions.  Using a Roth IRA is a wonderful way to invest.  Although you do not get a tax deduction when you put money into the Roth IRA, it grows tax free, and you can take it out tax free.  You do not have to start taking distributions at age 70 ½.  You can leave part or all of it to children or grandchildren, who can take it out over their entire life, totally tax free!  The law has not allowed Roth IRAs for single persons earning more than $110,000 a year or married couples earning more than $160,000 a year.  However, in 2010, regardless of large income, a person may be able to convert a traditional IRA, 401(k) plan, profit sharing plan, 403(b) plan, 457 plan or even an inherited 401(k) into a Roth IRA.  Income tax must be paid on the conversion, and it could be a huge tax, but thereafter the Roth IRA and its profits are tax free forever.  It is possible to set up a Roth IRA to invest in real estate, private corporations and LLC’s, etc. and there are techniques for legally reducing the taxes payable upon conversion.

© OKURA & ASSOCIATES, 2010