Frequently Asked Questions

A. There are situations that may be too complex or too difficult because of family dynamics or the probate court deems it necessary. Often, it makes sense to employ an objective third-party professional.

A. There are several choices available in Hawaii or on the mainland, and each company has its advantages and disadvantages. You are encouraged to review the choices in order to make an informed decision.

A. Finding another successor fiduciary is not a problem because the way these relationships are established. Probates and conservatorships are court supervised, and an attorney is required to represent a Hawaii fiduciary to prepare the court filings. The attorney-of-record would petition the probate court for a successor personal representative or conservator. For a trust, the appointment of a new successor trustee depends on the provisions of the trust. Ifa Hawaii fiduciary was court appointed, the trust attorney would petition the probate court to appoint a new successor trustee.

A. This is true for any fiduciary whether it is an institutional fiduciary, like a trust department at a bank or a private fiduciary who is not a practicing attorney. There are court filing requirements and procedures that require an attorney. Having an attorney act as a fiduciary would appear to be a cost-savings, but attorney fees can be higher than those charged by private fiduciaries. The advantage of combining a Hawaii fiduciary, for administrative and accounting functions and maintaining beneficiary relationships, with the legal expertise of a fiduciary attorney benefits everyone.

A. Team work is a fundamental part of how a Hawaii fiduciary should conducts business. A Hawaii fiduciary should not provide legal, tax or financial advice or market any financial products. Working with your advisors is important for a successful relationship.

A. What is a trust?

A trust is a document that allows a third party (called the trustee) to hold assets in a "box" called the trust on behalf of any beneficiaries.

What are the benefits of preparing a trust?

• Avoidance of Probate. A trust will help you avoid probate, which is a long court process in which the court controls the distribution of assets to the heirs.
• Privacy. Because the content of a trust is private, it will not become a matter of public record, as it will be in the case of probate.
• Being able to control your assets. You can take control of how and to whom your assets will be distributed by preparing a trust during your lifetime.

Conclusion

If you haven't prepared a trust yet, it may be a good idea to consider preparing one!

U.S. Trust v.s. Foreign Trust

Generally, most trusts prepared in the U.S. will be considered to be a U.S. Trust. However, if a trust names a non-U.S. resident or a U.S. citizen who lives outside of the U.S. as a Successor Trustee, the IRS could consider the trust to be a "foreign trust," which may lead to more tax consequences, compared to a U.S. Trust.

"Control Test" Requires a U.S. Person To Be The Trustee

The "Control Test" under the federal statutes requires that a "U.S. person" be able to control all significant decisions of the trust, in order for the trust to be classified as a U.S. Trust. Under this test, it may be a good idea to avoid appointing any person who lives outside of the U.S., and therefore, is not a resident of the U.S., or a U.S. Citizen who consistently lives outside of the U.S. Greencard-holders who reside in the U.S., or U.S. Citizens who live in the U.S. may be good candidates for a Trustee in creating a U.S. Trust.

Conclusion

When preparing a trust, it is a good idea to take note of the nationality and residential status of the person you wish to designate as a Trustee.

A. What are the main Ancillary Documents that are prepared with your Trust Document?

When one prepares a trust, the trust designates which assets the settlor/grantor will give to which beneficiaries upon his/her death. The attorney who prepares the trust is likely to prepare some other ancillary documents for the settlor/grantor, together with the main trust document. Such primary ancillary documents can include the Pour-Over Will, Durable Power of Attorney, and the Health Care Power of Attorney.

What is the Pour-Over Will?

A Pour-Over Will is a special type of will that is often prepared together with a trust document to ensure that assets that were not funded into the trust will be transferred to the trust upon the death of the settlor/grantor. Often, people forget to fund any assets that they purchased after they've already prepared his/her trust, into the trust. The Pour-Over Will ensures that such assets transfer to be made a trust asset, upon the death of the settlor/grantor.

What is a Durable Power of Attorney?

A Durable Power of Attorney is a document in which the grantor/settlor of a trust can designate an agent who will make decisions for and manage the financial affairs of the settlor/grantor in the event that the settlor/grantor becomes incapacitated. The powers granted to such agent may include the power to buy/sell property, sign any contracts, or file tax returns on behalf of the incapacitated settlor/grantor.

What is a Health Care Power of Attorney (Advance Health Care Directive)?

A Health Care Power of Attorney, which is also called the Advance Health Care Directive, is a document in which the grantor/settlor of a trust can designate an agent who will make decisions related to medical care for the settlor/grantor, in the event that the settlor/grantor becomes incapacitated. The Health Care Power of Attorney can also be used to designate certain wishes of the settlor/grantor, such as whether to receive any life-sustaining procedures in the event that he/she goes into a vegetative state, etc.

Conclusion

As the ancillary documents mentioned above serve an important purpose, it will be good for an individual to ask his/her attorney to prepare such ancillary documents, together with the individual's main trust document.

A. What is a Pet Trust?

A Pet Trust is a trust that you can prepare for your pets(s) that specify how they will be cared for financially if you pass away or become incapacitated. You can prepare a Pet Trust separately from your regular Trust to provide for human heirs, or you can build a Pet Trust into your regular Trust that is intended to provide for human heirs.

How do you prepare a Pet Trust?

Under a Pet Trust, you can designate a trustee to manage your Pet Trust and a caretaker who will care for your pet(s). You can set aside money that will be used to provide for your pet(s) should you die or become incapacitated. You can also provide specific instructions with respect to the care of your pet(s) related to veterinary checkups, grooming costs, specific food options for your pet(s), and etc.

Conclusion

Because all 50 states and the District of Columbia now have laws allowing Pet Trusts, it may be a good idea to consider preparing a Pet Trust for your pets in order to prepare for a time that you may die or become incapacitated.

A. Funding your Trust

When you prepare a trust, it is not enough to merely prepare the trust document. You must also fund the trust, which is the process of making an asset part of your trust properties. An asset not properly transferred to the trust does not become a part of your trust properties, which may subject such asset to the probate process upon your death.

How do you fund Real Property into a Trust?

You will prepare a deed to transfer real property into your trust. In such deed, the title will be transferred from the current owner to the named Trustees of your trust e.g. "to A and B, Trustees of the AB Trust". The deed must be recorded at the appropriate recording office.

Conclusion

As the trust document is insufficient by itself without completing the funding process, it is important to remember to have your attorney complete the funding process of your assets into the trust.

A. How is the COVID-19 affecting the area of estate planning?

COVID-19 is affecting every area of our lives in a significant way. The pandemic is also spurring individuals and families to draft their estate planning documents or to review/amend already-existing document as they face the possibility of death from the novel COVID-19.

Despite social distancing requirements, can you still draft a Trust/Will?

Many legal documents require notarization, including a trust or will. Some states have issued an emergency order to permit remote online notarization due to the emergence of COVID-19, including Hawaii. Therefore, if you do not already have a trust or will in place, it is still possible to draft a Trust/Will at this time by meeting with your attorney and/or notary via Zoom to effectively execute your legal estate planning document by getting it notarized properly.

Should you draft any ancillary documents e.g. Durable Power of Attorney, etc.?

There are certain documents that your attorney may draft, together with your main estate planning documents such as a trust or a will. They include the Durable Power of Attorney (which allows an agent to act on your behalf with respect to financial transactions), and your Health Care Power of Attorney (which allows an agent to act on your behalf with respect to medical decisions). It may be wise to have your attorney prepare these ancillary documents in order to prepare for the event that you may become incapacitated from COVID-19.

Conclusion

If you have no estate planning document in place, now is a very good time to have one prepared. If you already have one in place, it is still a good time to review it and see if it needs some changes made to it.

A. The Impact of the Newly-Elected President on Estate Planning, etc.

The New President was Elected this Year

The new President of the United States was elected recently. President Biden may bring some changes to rules that may affect the area of Estate Planning.

New Estate Tax Rules for 2021

The IRS announced in October, 2020 that the Estate Tax Exemption Amount in 2021 will be 11.7 million dollars per individual. The Gift Tax will remain at $15,000 per individual in 2021. The Estate Tax Exemption Amount in 2021 for foreign individuals will remain at $60,000 per person.

What changes may be on the way?

The new President may make the following changes with respect to estate-related taxes:

• Repeal of the Step-up in Basis which can lead to an increase in Capital Gains Tax (*Step-up in Basis means that when property passes to an heir upon a death, the heir succeeds to the property at the market value of the property at the time of death and not at its original value when it was first purchased. The heir can then sell the property with minimal or no Capital Gains Tax, but this rule can be repealed under the new President's rule); and
• Decrease in the Estate Tax Exemption Amount.
• (It is not clear as to what degree the new President will decide to reduce the Estate Tax Exemption Amount, but there is talk that it may be reduced to as low as $3.5 million, which was the Estate Tax Exemption Amount in 2009.

Conclusion

It may be good to consider any changes that may take place under the new presidential rule and talk to professionals to consider gifting, etc. that may help reduce your estate tax obligations.

A. How to Prepare for 2021 with respect to Estate Planning

Keeping a record of your assets

As this is the new year, it is a good time to think about your estate planning if you have not done so already.

The first thing that you may do is to prepare a list of your assets and update this list every year. In the list, you can list out all of your real estate, bank accounts, financial accounts, etc. including information relevant to these assets such as the address at which your real estate is situated, and account numbers of any bank/financial accounts that you own, etc. After you prepare this list, you may share it with your family members to alert them as to the assets you own.

Many of my clients die without leaving a record of their assets which leaves their heirs to figure out what assets they owned during their lifetime. In many cases, heirs will have to give up on succeeding to certain assets of the deceased, as they are not able to locate such assets. Creating a list of assets and sharing them with your family members during your lifetime can make it easier for your heirs to locate your assets and succeed to them upon your death.

Preparing a trust, etc.

Once you prepare a list of your assets, you can hire an attorney to draft any of the following documents for you:

• A Trust;
• A Transfer on Death Deed (for real estate only); or
• A Will

You can also proceed with designating a beneficiary on your bank/financial accounts on a Payable-on-Death form, which will help you avoid probate. As it is often easy to procrastinate on preparing estate planning documents, 2021 can be the year to do it.

Conclusion

It is good to plan your estate planning at the beginning of the year and actually follow through with it while you can. Wish you all the best in year 2021!

A. How do you obtain an EIN number for your Estate?

What is an EIN number?

An EIN number is a nine-digit number assigned by the IRS, typically to business entities (e.g. corporation). However, an EIN number can also be assigned to an Estate or a Trust.

During a probate, one must typically take the EIN number for an Estate to a bank to open an Estate account for the deceased, as the deceased's account at the time he/she was alive, is no longer functional after death. For a Trust, one must obtain an EIN number for the Trust after the Trustor's death, because the Trust becomes a separate entity from the Trustor once the former dies, and the Trust requires its own unique identification number.

How do you obtain an EIN number?

One can obtain an EIN number by filing an application called the SS-4 with the IRS. If the deceased had a social security from the United States, the SS-4 can be filed via the online application. However, if the deceased died in a foreign country and did not have a social security number in the United States, one must file the SS-4 via fax or by mail to the IRS. One can obtain an EIN number quickly via the online application, but it takes more time to obtain the EIN number by fax or mail.

Conclusion

It is good to know that an EIN number does not only serve business entities, but also plays an important role when administering an estate or trust.

A. Probate and Ways to Avoid it

What is probate and what can you do to avoid the probate process?

Probate is the legal court process by which a deceased person's estate is distributed to heirs. Probate goes through the court system and can take 1-3 years to complete and as such can be time-consuming, costly, and burdensome.

What documents can you prepare in order to avoid the probate process?

There are 2 ways to avoid probate:

1) Prepare a Trust during your lifetime

You can prepare a trust, which is a legal document that provides instructions on how and to whom assets will be distributed upon the trustor's death.

2) Prepare a Transfer on Death Deed during your lifetime

You can prepare a Transfer on Death Deed, which is a legal document that allows the owner of real estate to transfer title thereof to a beneficiary upon the owner's death.

Conclusion

As probate is costly and time-consuming, you may consider preparing a Trust or a Transfer on Death Deed during your lifetime to avoid probate at your death.

A. What is an Ancillary Probate?

As a recap, probate is the process by which the court distributes a deceased person's estate to heirs and designated beneficiaries and pays off any creditors. Generally, the primary probate proceeding is held in the state of residence of the deceased. However, an ancillary probate, or a secondary probate proceeding may be necessary if the deceased had any assets located in another state, e.g. a real estate titled in another state.

When is an Ancillary Probate initiated?

Generally, an ancillary probate is initiated after the primary probate has been opened. Upon the opening of a primary probate, the court will look into the validity of a will and names the executor/personal representative. If a will does not exist, the court will initiate an intestate administration and appoint an executor/personal representative. Because a state probate court can exercise jurisdiction only on property that exists within the state, an ancillary probate may need to be initiated in another state if the deceased leaves any assets located in that secondary state.

Conclusion

In order to spare more legal fees for opening an ancillary probate and for the purpose of avoiding a complicated probate, you may take the following precautionary measures during your lifetime that help to avoid probate including: 1) Titling a real estate in Joint Tenancy or Tenancy by the Entirety; 2) Putting a property in a trust; or 3) Preparing a Transfer on Death Deed for a real estate.

A. What Types of Probate are there?

There are two (2) types of probate available: Informal Probate and Formal Probate.

What is Informal Probate?

An informal probate allows an estate to be probated without any court involvement and court hearings. An attorney who is hired to take care of the probate will file the decedent's death certificate and other documents needed to be filed for the probate, with a clerk at the probate court. The probate can be completed by filing all necessary documents with the probate court, without the probate judge having to step in to make any decisions for the probate. An informal probate works well in situations where the decedent dies in the United States and a death certificate is issued within the same country.

What is Formal Probate?

A formal probate is one in which an attorney who is hired to take care of the probate will file a petition for a hearing with the judge and the attorney will appear before a judge on a hearing date prescribed by the court. Formal probate is necessary when there is, for example, some type of dispute over the validity of the will, etc., that needs to be resolved by a probate judge. Formal probate works well for Japanese clients who pass away in Japan and their death is noted in the "Koseki," or "Family Register." A probate judge in Hawaii can exercise his/her own discretion in accepting death certificates from countries other than the United States and will often accept an English translation of the "Family Register" without requiring any documents to be apostilled.

Conclusion

It is good to understand the different types of probate that are available to know which one should be used for the death of your loved one.

A. Can a Foreign Will be Probated in Hawaii court?

When a foreign national passes away and leaves a will drafted in a country other than the United States, he may want such foreign will to be probated in Hawaii court, such that his assets will be distributed to the beneficiary(s) under his foreign will.

Admissibility of a Foreign Will in Hawaii court

For practical purposes, a foreign will drafted in a country outside of the United States can be admitted in Hawaii court. A will from Japan, for example, will need to be translated into English before it is submitted for probate in Hawaii court. Further, the probate attorney will need to show that the will was validly executed under the laws of the foreign country in which it was executed. For example, for a Notarial Deed Will (Kosei Shosho Igon), which is a type of will drafted very often in Japan, the probate attorney in Hawaii will need to show that the will meets the requirements of a validly-executed Notarial Deed Will (Kosei Shosho Igon) under the Civil Code in Japan.

Conclusion

It is good to know that a foreign will can be admitted for probate in a U.S. court and therefore, a beneficiary of your choosing under the foreign will can succeed to your assets.

A. What is a Transfer on Death Deed?

A Transfer on Death Deed is a unique type of deed that can be prepared, during the owner's lifetime, to transfer title of a real estate to a designated beneficiary. The title will transfer to the beneficiary only after the original owner's death.

Who would benefit from a Transfer on Death Deed?

An individual who owns solely real estate can benefit from preparing a Transfer on Death Deed as it is shorter and easier to prepare than a trust. A non-resident of the United States or a person who lives in a state other than the one in which the real estate exists can benefit from preparing this easy-to-prepare deed.

A. What is a Payable on Death Account (POD)?

A Payable on Death Account (POD) is an arrangement with your bank to designate a beneficiary on your bank account. After the death of the bank account owner, the beneficiary can succeed to the funds in the account by completing an Affidavit (provided by the bank) and showing his/her identification, e.g. a passport or driver's license to the bank.

The Payable on Death Account (POD) is sometimes referred to as a "Totten Trust" or "ITF" (short for "In Trust for").

A Payable on Death Account (POD) helps avoid probate

By designating a beneficiary on one's bank account during his/her lifetime, the owner can avoid probate when he/she dies, as the bank will be able to cut a check to the beneficiary for the funds in the owner's bank account without the account having to go through the court probate process.

Conclusion

The Payable on Death Account (POD) can provide an easy way for avoiding the probate process.

A. What is an Elective Share in Hawaii?

In Hawaii, a disinherited spouse has a right to claim a percentage of his/her deceased spouse's estate under the concept of Elective Share.

How is the amount of Elective Share calculated?

The percentage of the estate that a disinherited spouse can claim depends on the number of years such spouse was married to his/her deceased spouse. Under the current rules, a disinherited spouse can claim up to only 3% of his/her deceased spouse's estate if the former had been married to the deceased spouse for only 1-2 years prior to his/her death, and up to 50% of the estate if the disinherited spouse had been married for 15 or more years prior to the deceased spouse's death.

Conclusion

If, for whatever reason, your spouse disinherits you from his/her will or trust, it is good to know about the Elective Share in Hawaii in order to be able to claim your rights to a deceased spouse's estate.

A. What is an Affidavit for Collection of Personal Property?

An Affidavit for Collection of Personal Property is a document that a successor in interest of a decedent can complete to gather the personal property of the decedent without going through the probate process. In different states, a successor in interest can complete such form without going through probate, if the estate amount of the decedent does not exceed a certain amount, as provided by each state law. In Hawaii, this Affidavit can be used as long as the estate of the decedent does not exceed $100,000 (excluding the value of motor vehicles).

How do you complete the Affidavit for Collection of Personal Property?

Generally, states that have the Affidavit for Collection of Personal Property have a template for it that is readily available for download. A successor in interest can download such form, complete the information that is needed on the form including the Date of Death of the Decedent, and sign the form as the "Affiant" before a licensed Notary Public of the state in which the Affidavit will be submitted.

Where do you submit the Affidavit for Collection of Personal Property?

A successor in interest can submit the Affidavit for Collection of Personal Property to banks or other financial institutions, or any other companies/entities from which the personal property of the decedent can be distributed, as long as the decedent died leaving an estate that does not exceed the estate amount provided by state law, the excess of which will mandate a probate in that state.

Conclusion

It is good to be aware of the existence of the Affidavit for Collection of Personal Property as it provides a quick and efficient way by which a successor in interest can collect the personal property of a decedent.

A. Intestate Succession in Hawaii

If you die without a will in Hawaii, your assets will go to your heirs under the intestate succession rules in Hawaii.

Introduction to the Intestate Succession Rules in Hawaii

The following chart gives a short introduction of who gets what under intestate succession, in the event the deceased dies without a will.

The intestate succession rules are difficult to navigate, but you can see that if one dies leaving only a spouse without children, or a spouse and children who were all born between the deceased and his/her spouse, then the spouse inherits everything, which is easy to understand. The rules for inheritance become complicated when the deceased or his/her spouse had a previous marriage and had children therefrom.

Conclusion

As many people die without a will, it is a good idea to be aware of the intestate succession rules in Hawaii.

A. What are Forms P-64A and P64-B in Hawaii?

The Conveyance Tax is a type of tax levied on the transfer of real property (or real estate) which is usually charged to the seller. A certain percentage is levied on the amount paid for the sale/transfer of the real estate to calculate the Conveyance Tax.

In Hawaii, one must complete Form P-64A issued by the Hawaii Department of Taxation to report the amount paid for the sale/transfer of the real estate to pay the Conveyance Tax.

However, the Form P-64B permits one to obtain an exemption from the Conveyance Tax, provided that his/her transaction meets an exemption provided on Form P-64B.

It is important to note that even though Forms P-64A and P-64B are administered by the Hawaii Department of Taxation, they must be filed at the Bureau of Conveyances, which is a recording office for real estate deeds, etc. in Hawaii.

Notable Exemptions under Form P64-B

Some of the notable exemptions provided under Form P64-B include the following:

• Transfers between a husband and wife, reciprocal beneficiaries, or a parent and child in which nominal consideration (meaning little or no money) is paid;
• Transfers in which a nominal consideration of $100 or less is paid or will be paid; and
• Transfers from a grantor to a grantor's revocable living trust.

When one chooses certain exemptions on Form P64-B such as the ones provided in 1) and 3) above, the person can submit the P64-B directly with the Bureau of Conveyances without obtaining prior approval from the Hawaii Department of Taxation. However, when one chooses other exemptions on Form P64-B such as the one provided in 2) above, he/she will be required to explain the real estate transfer in detail on Form P64-B and submit it for approval first to the Hawaii Department of Taxation before he/she can file it with the Bureau of Conveyances.

Conclusion

As Hawaii has unique rules and forms unlike those mandated in Mainland U.S.A., it is good to be aware of them.