Category: Estate Planning

Trust or Will in Hawaii? Deciding the Best Option for You

“The best time to plant a tree was 20 years ago. The second-best time is now.”

-Chinese Proverb

This well-known Chinese proverb serves as a simple reminder that it’s never too late to start anything—whether it’s chasing a lifelong dream, investing for retirement, or, in the case of this article, drafting your estate plan. Experts emphasize that regardless of your net worth or age, having an estate plan—at a minimum, a Last Will and Testament—should be a top priority.

I frequently share this sentiment with my financial planning clients. A common response is: “Garrett, isn’t an estate plan just for the wealthy?” It’s a valid question, and it’s crucial to understand the facts. Documenting instructions for the transfer of one’s possessions has ancient origins, some tracing back to ancient Rome. Clearly, explicitly outlining one’s final wishes has stood the test of time.

The American Bar Association defines estate planning as “a process involving the counsel of professional advisors, including your lawyer, accountant, financial planner… covering the transfer of property at death…” The core document most often associated with this process is your Will. In essence, estate planning involves setting up a plan for the management and transfer of your estate after your death, using a Will, Trust, or other legal mechanisms.

When it comes to basic estate planning, one usually starts with a Will. However, Wills are not an end-all. As with all things related to financial planning, it depends on your situation. Depending on your assets, children, and property, having a Will means there will be legal proceedings (probate) before any asset distribution. This is where having a Trust can be beneficial.

If you’ve wondered if estate planning is right for you, understand this: It’s more about your wishes and goals than about the monetary value of your assets. It also clarifies how you want your affairs handled if you are unable to manage them yourself. The bottom line is that estate planning is not just for the wealthy. Even people with modest assets need a written plan. Like many other things in life, the biggest step is simply getting started.

So, what is a Will? It’s a legal document that expresses your last wishes for the distribution of your property and other assets. Some say a Will is one of the single most important documents a person can have. Yet, many Americans delay dealing with it for various reasons. Some think they’re “too young” or “too old” to need a Will. Others believe they don’t have enough net worth to necessitate a Will.

Do you need both a Will and a Trust? It’s a valid question. There are significant differences between the two. A Trust goes into effect as soon as it is signed, whereas a Will takes effect after you pass away. Another major difference is that Wills are public records, while Trusts are private. Many choose a Trust for privacy reasons alone.

Technically, what is a Trust? Trusts come in many varieties, nearly a dozen at last count. All Trusts are legal entities with separate and distinct rights, like a person or corporation. The type of Trust you need depends on your circumstances, and consulting a professional is essential.

While there are many online resources for estate planning, it is vital to do your due diligence and find an estate planning attorney you trust. You’ve spent a lifetime accumulating your assets, so be diligent in selecting an attorney to ensure your estate transfers smoothly to your heirs. Just like engaging with a fiduciary financial advisor, the value of hiring an estate planning attorney lies in the counsel they can offer for your unique situation.

Having an estate plan gives you control over your wishes, not the courts. As a veteran attorney once told me, “If you do not have a Trust, the courts will have one for you. However, you may not like it, and by then, it will be too late.” This may not be eloquent, but it drives the message home.

In financial planning, there aren’t many guarantees. But here’s one: even if you don’t have many assets, your estate plan ensures that everyone will know your wishes. That alone is invaluable.

After developing your estate plan with your attorney, remember don’t just put it in a drawer and forget about it. As your life evolves, your estate planning documents should reflect those changes.

In summary, it is imperative to work with an experienced professional. There are many moving parts in estate planning. Life is unpredictable, but planning today ensures your tomorrow is exactly as you envision it. If this article can do one thing, I hope it encourages you to start planning now. It will make things easier for your family later.

Garrett Wheeler serves as a board member with Yacht Harbor Towers AOUO, Inc. He is a Honolulu-based fiduciary and financial advisor with SEA Financial Hawaii. Curious about which type of estate plan is right for you? Contact us today and we’ll email our quick and easy quiz to find out. Aloha!

Note: Originally published in Building Management Hawaii

Give the Gift of a Lifetime

Your family means the world to you. You want your children and grandchildren to be financially protected, so they have the opportunity to enjoy life, live comfortably and worry less. As a fiduciary, financial advisor, I’ve helped clients’ open traditional brokerage accounts in their own names, and we’ve earmarked the money for their child (or grandchild). This lets my clients’ access their money while their child is still a minor and keep control of it after their child reaches adulthood. Then, when they feel their adult child is ready for it, they can transfer the account to an account in their child’s name. Or they could make their child the beneficiary of the account if they die or become incapacitated. With greater adult control comes higher taxes, though. They are taxed on any earnings at their current tax rate, rather than at your child’s. They will also need to keep in mind gift tax rules when deciding to turn over the account funds to their child, meaning it may not make sense to transfer all of the account’s assets at once. Life Insurance on a Child? After 22 years in this industry, I have heard the many pros and cons on buying a life policy on kids. I sincerely do not have a ‘horse in the race’. As a fiduciary, I am an investment advisor, but I do have extensive experience with insurance planning, as well. Without question, I am always going to do what is in my client’s best interests. And like every other financial product out there, it all depends on your unique circumstances. I would tell parents, first, assess your household budget. Then, take a strong, objective look at your own life insurance needs before buying a policy for your kids. Because, in general, your own life insurance is more important than your child’s. But if you’ve got it covered (human life value ‘covered’, that is), then there are some real benefits to child life insurance policies. Advantages such as, guaranteed insurability, and a cash value life policy acting as a supplemental savings vehicle for your child. And lastly, which we hope and pray, we will never need, is to cover costs if the worst were to happen. On a positive note, you can help your children or grandchildren preserve their ‘insurability’ by putting life insurance in place while they are young. When we are younger, many of us think we’re invincible. Take it from me (after a life-altering spinal cord injury at age 39) we are not! Whatever route you decide to take to give your children or grandchildren an early start down the path of financial security, either financial solution will almost certainly be better than not doing anything at all. Whether it is a traditional brokerage account, or a cash value life insurance policy, it opens up opportunities for helping pay for college, buying a new home or supplementing their retirement down the road. In my estimation, that’s a gift of a lifetime. Email me at garrett.wheeler@securitiesamerica.com for a free PDF resource brochure from Securian called, Gift of a Lifetime. Aloha! -GW SEA Financial Hawaii does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. SEA Financial Hawaii cannot guarantee that the information herein is accurate, complete, or timely. SEA Financial Hawaii makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

Do I Need a Trust?

Oftentimes, trusts are used as a tax-reduction solution in the estate planning discussion, as part of our comprehensive financial planning process. But it can do so much more in the way of giving clients control over their immortal destiny. As you’ll learn, there are many types of trusts that can be used as part of an individual’s overall financial planning strategy. In our day-to-day meeting with advisory clients, we are finding that individuals need to also consider ‘non-tax reasons’ for the use of trusts. What are these non-tax reasons? Well, they include ensuring that assets pass to the intended beneficiaries at the time and in the manner desired. And defensively, to protect the assets passing to beneficiaries instead of creditors.

I’m often asked by some clients, ‘Do I need a Trust?’ And like many things planning, it depends on your circumstances. But without reservation, I wholeheartedly believe that trusts provide significant benefits.

And similarly, the reasons for establishing a trust are as different as the people who have them. Like financial planning, there are no two alike due to the uniqueness of each person’s needs, desires and concerns. Regardless of their personal differences, many people discover that a trust is a smart addition to their estate strategy. A properly structured trust can be a prudent way to hold and distribute assets. And, depending on the type of trust established, it can protect assets from creditors, reduce estate taxes, and allow for greater control over asset management and distribution after death.

Because SEA Financial Hawaii does not give tax or legal advice, we encourage individuals to consult with their tax and legal advisors to explore the concepts discussed below. However, we do have vetted resources—professional alliances—with various attorneys and firms that we share with clients. In fact, I accompany my clients on their first visit with an estate planning attorney, especially if being referred by us. This referred group of professionals can work you to help determine if, and how, a trust can be used as part of your estate strategy.

So, what is a trust? Investopedia says that a “trust is a legal entity with separate and distinct rights, similar to a person or corporation. In a trust, a party known as a trustor gives another party, the trustee, the right to hold title to and manage property or assets for the benefit of a third party, the beneficiary.” https://www.investopedia.com/terms/t/trust.asp

Simply put, a trust is an arrangement where one person agrees to hold property for the benefit of another person or persons. This is especially useful in situations where the beneficiary is vulnerable or under legal disability, such as when:

  • One spouse wishes to protect assets from their creditors so that they may benefit the other spouse.
  • The beneficiary is a minor.
  • The beneficiary is unskilled in financial matters.

Of course, this is only a cursory list. In the real world, the kinds of situations and outcomes are very broad, and again, unique as the people who have trusts. Years ago, I was told if you have a spouse, children and/or you own a home or substantial assets, you need a trust.

There are all kinds of trusts, with varied uses and purposes. But they all fall into one of two classes:

  • Living and
  • Testamentary.

Living trusts can be either revocable or irrevocable, and testamentary trusts are created at death based on terms in your will. The discussion that follows focuses on some of the more commonly used trusts, including an explanation of any tax advantages.

A Revocable Living Trust is a trust created during the grantor’s lifetime and allows the grantor (you) to maintain total control over the trust during your life. A revocable living trust is an efficient and effective way to transfer property at the time of the grantor’s death.

An Irrevocable Living Trust is a trust that is established by the grantor while they are still alive and which, by its terms, cannot be revoked or terminated by the grantor. One reason to choose irrevocability is to remove the trust assets from the grantor’s taxable estate. An irrevocable life insurance trust (ILIT) is probably the most common example of an irrevocable living trust.

A Testamentary Trust is a trust established under a decedent’s will is known as a testamentary trust, and the grantor is referred to as the “testator,” that is, the maker of the will. Testamentary means “at death,” and such a trust has no legal value or effect until the testator’s death, as it does not come into being until the testator dies. Because a testamentary trust is not actually established until death, the trust may be modified or revoked beforehand by amending the will. After the grantor’s death, the testamentary trust becomes irrevocable. Because it is created by a will, the assets of a testamentary trust are subject to probate and may be taxed as part of the estate.

As a fiduciary financial advisor, my mission is to do what is in the best interest of my clients. When clients ask me why they should have a trust documented and recorded, it comes back to one thing for me: Your desires and wishes. In my work, I find that most trusts are created to help minimize transfer tax consequences (i.e., estate and gift taxes, generation-skipping tax, etc.). However, I often share with my clients that they may offer advantages beyond the surface tax savings. Most importantly, trusts allow you (the grantor) to do what you really want to do with your assets, possessions and wealth. Again, it gives you control over your wishes. Not the courts. That’s invaluable. Years ago, a veteran advisor told me, ‘Just tell your clients this: if they don’t have a trust, the courts will have one for them. However, they may not like it, but by then, it will be too late…’ Yes, not eloquent, but it drove the message home for me.

Finally, here are more non-tax advantages of using trusts. First, control. Gives you oversight as the grantor. Then there is financial management. A trustee you select can ensure beneficiaries are taken care of. And it also provides protection against creditors. An important benefit to some is the use of ‘staggered distribution ages. I have a client who wanted to ensure that the trust made distributions to his children over a period of time to enable them to become more mature and learn how to handle financial matters. In this client’s case, income from the trust was distributed annually plus one-quarter of trust funds (corpus) at age 25, 1/3 at age 30, ½ at age 35 and the balance at age 40. If there was no trust in place, the inheritance would be handed to the children at the age of majority (Hawaii recognizes the age of majority as age 18).

As this brief article explains, it is imperative that you work with an experienced professional. We can provide you with an overview, as well as the costs associated and the complete details including a referral to an estate planning attorney. As indicated, there are a lot of moving parts. But remember this: Life is unpredictable, and procrastination can really hurt you. So, take action today to protect those you love. And I guarantee, you won’t regret it. -SEAFIHI

At SEA Financial Hawaii, we do not provide tax, accounting, or legal advice. Clients should consult their own independent advisors as to any tax, accounting, or legal statements made herein. This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients.

States You Shouldn’t Be Caught Dead In

WSJ logoA colleague of mine, Gregory Gassert, who is in our Minneapolis affiliate at Guardian Wealth Strategies, was recently featured in a WSJ article entitled, States You Shouldn’t Be Caught Dead In. In this piece, Hawaii is featured as one of two states that track the U.S.’s $5 million-plus exemption. However, as Gassert shares, “most state exemptions aren’t indexed for inflation, extending the tax’s reach over time.”

So what can be done to minimize or avoid potential problems? As with most financial planning issues, experts say, “careful planning is required to avoid traps—especially for taxpayers who move to another state.” And to be clear, there are a host of strategies to mitigate federal and/or state estate taxes. For one, consider section 529 of the Internal Revenue Code which provides for an often overlooked estate planning vehicle designed to protect assets away from estate taxes over multiple generations and can act like an education endowment. For more applicable details as it relates to your situation, you will want to have a more in-depth discussion with your estate planning attorney or CPA. http://online.wsj.com/news/articles/SB10001424052702304682504579155510034634716

Estate Planning and the Importance of Drafting a Will

Often, the prospect of writing a will brings up feelings of discomfort. And yet, devising a will is one of the most important factors in estate planning, one that should promote feelings of security. Doing so means that heirs will be provided for and your distribution wishes will be met. Like many people, have you postponed the task of writing a will? Or, is it time to review a will drafted years ago? A will is a formal, legal document instructing your survivors in the settlement of your estate. A qualified, experienced, legal professional can help ensure your will is properly written and contributes to the overall success of your estate plan.

Composing a will helps to ensure that you control how your estate is divided. An estate that is not covered by a will (also known as an intestate estate) will bring into effect your state’s intestacy rules. These rules govern how your estate will be divided and by whom. Some people may believe their estate is too minor to need a will, but even if you believe this is the case, you should consider writing one anyway. The reason is simple: If you die without a will, you automatically forfeit the chance to direct the dealings of your estate. In addition to facilitating bequests, a will is an opportunity for you to designate your own executor, guardians for minor children, and other fiduciaries.

If you have decided that you would like your estate to pass to personal friends or charity, a will is the primary means of fulfilling these wishes. Without a will, the courts will have no way of knowing your preferences and will seek relatives—however distant—for distribution purposes. For those who have life partners and are not married, wills are a means of helping to ensure that these loved ones will be included. In addition, a will offers the opportunity to designate a secondary beneficiary in the event of the primary beneficiary’s death.

Even those who have shifted the majority of their assets into trusts or who use joint ownership should draw up a will. While these methods are designed to bypass probate (the judicial process that establishes the validity of a will), they are not able to cover all assets. A will, however, does have the potential to cover all assets, leaving no property unaccounted for and no stone unturned.

Wills are a means of providing security to you and your loved ones. The topic may be emotionally challenging, but when the many advantages are considered, they far outweigh temporary discomfort. Careful estate planning is the best way to identify how your assets will be divided, who is to be named executor, and who will receive benefits according to your wishes. Consult a legal professional for specific guidance.

Copyright © 2011 Liberty Publishing, Inc. All Rights Reserved.

You Do It For L-O-V-E

What do love and life insurance have in common? More than you might realize. The main reason you buy life insurance is because you love someone. Think of it as the ultimate act of selfless love. Life insurance isn’t glamorous or sexy, but it is essential to protecting you, the ones you love, and/or your business.

In my book, life insurance is a product of love. It may sound a bit sappy, but the toughest of us will wish we had it when our family most needs it. It’s your choice. Choose to leave a positive and lasting legacy, not a burdensome reminder of you being gone, along with your missed income.

Having a sound financial plan requires knowing which insurance and investments products to buy. But there are literally thousands of insurance policies, annuities, etc. from which to choose. That’s where a qualified insurance professional can help. Contact me today for your free insurance/estate analysis and review.

This video drives home this very powerful concept.

Here’s a free resource guide: “What You Need To Know About Life Insurance”.

http://www.lifehappens.org/pdf/printable-consumer-guide/life-insurance-pcg.pdf

Listen Up Hawaii: Ignore LTC Planning at Your Peril

Check out this article that appeared in the NY Times:

Ignore Long-Term Care Planning at Your Peril

You may never need long term care, but if you do, you’ll know that you’re prepared for whatever life may bring.

Most of us realize the fact that it’s going to be more expensive for us to take care of ourselves down the road, and we need to budget accordingly. Prior to making any decisions, make sure you talk to your advisor or agent about how to handle any proposed increases or changes in policy structure.

Consider this: In a recent Financial Planning Association blog, Ira L. Barnett, LUTCVF, said, “There are two possible mistakes someone can make in deciding to obtain LTC insurance: 1. Buy the coverage and never have a claim (loss of premium paid, lost income potential, etc.). 2. Not buy the coverage and have a claim. Personally, mistake #1 is a lot more attractive!”

So when is the best time to buy long term care insurance?

Answer – Of course, most of us need to balance our investments and expenses carefully, and long term care insurance has to be factored in with many other responsibilities. But it is important to note that long term care insurance is generally less expensive for younger buyers than for older ones. In addition, it is smart to buy long term care insurance while you are relatively healthy. Unfortunately, once a person’s health declines, he or she may become ineligible for long term care insurance.

The simple answer is this: the right time to buy long term care insurance is when you can afford it, and before you need it. We can work with you to help create a policy that meets your needs and suits your budget. Call me for a FREE needs analysis and informational booklet, (808)216-4147.

“What is Your Greatest Asset?”

Without hesitation, many people believe that their greatest asset is their home, or their retirement savings. Neither is correct. To be clear, your greatest asset is your ability to earn an income, that is, to make money and bring home a paycheck.

In a nutshell, my job is to help my clients protect their paycheck. My role is to solve a problem, and in this case, risk is their problem. We facilitate the transfer of risk. As I tell my valued clients, “let’s face it, your greatest asset desperately needs to be protected…” It is the foundation on which all of their hopes, dreams and aspirations are built. Without this type of “paycheck protection” coverage, it leaves them vulnerable financially. Continue reading →

Top 10 Reasons to Buy a Long Term Care (LTC) Insurance Policy

Perhaps Dorothy, in “The Wizards of Oz”, said it best: There’s no place like home! That’s why many Hawaii residents who need LTC prefer to receive it in their own homes. The ability to live independently is critical to maintaining quality of life. Remember, long-term care is not just about nursing homes anymore. Ultimately, coverage gives you the freedom of choice.

Here are my top ten reasons to buy LTC insurance coverage:

1. You will have an experienced professional available to plan for your care at home, providing all types of services related to your particular illness, injury, or condition.

2. Your family can be part of the care plan, but will not have to be the planners.

3. You will have the money to pay for long term care (according to PBN, Hawaii ranked 7th most expensive in the nation for home care services, with a median annual rate of $51,480 in 2010) without having to deplete the family nest egg.

4. Your loved ones can carry on a more normal life rather than being subject to your everyday (“activities of daily living” like bathing, dressing, eating, toileting, etc.) needs.

5. Your family will be able to attend to your needs out of love rather than obligation.

6. Because you’ll have the funds, you will be able to choose your own facility or choose to stay at home longer rather than prematurely entering a nursing home.

7. You will be able to leave some of what you have to your family rather than using up a large portion of their assets to pay for needed care.

8. You will be able to stay with your children or other loved ones without depending on them for all your care.

9. You can feel good knowing that all of the money you worked so hard to attain won’t be used up in a few short years (PBN reported that Hawaii’s nursing home costs have a median annual rate of $114,975, compared to the national average of $75,190).

10. Finally, there will be less friction between family members; one member won’t be stuck with the responsibility of caregiving.

M. Garrett Wheeler is a long-term care specialist with Guardian in Honolulu, Hawaii. He’ll be glad to explore your options for coverage that suits you best, so that if you ever need it, you’ll have the freedom to choose the care setting that is most appropriate for your circumstances. He may be reached at gage@successhawaii.com or by phone at (808) 216-4147.