After spending a lifetime of earning, saving, and investing—and paying income and capital gains taxes all the way along—you may wonder why our government feels entitled to tax the value of what’s left when you die. However, the IRS and the State of Hawaii want a piece of your estate.
As of 2021, each U.S. citizen residing in Hawaii is allowed to pass on $5.49 million free of Hawaii estate tax, and $11.7 million free of Federal estate tax. I call these amounts “coupon” amounts because it is as if the government gives each of us a coupon to shelter assets from estate tax. At the current coupon amounts, most of us do not have to worry about the government reaching into our family cookie jars when we die. However, major changes to the coupon amounts may be around the corner.
Congress is talking about cutting the Federal coupon approximately in half, which is still pretty generous for most people, but Hawaii has been talking about reducing its coupon to $1 million. This will mean that there could be tax payable at your death if you own a house and have relatively modest amounts of cash, life insurance, and retirement savings.
Don’t wait until the law changes before you call your estate planning advisors to talk about how to address the changes that might be around the corner. There may be things you can do to minimize the tax bite and maximize what you leave your family.