2023 Annual Newsletter
Aloha. It is my hope that this newsletter finds each and every one of you healthy and safe during these trying times.
As we are swiftly concluding 2023, our office has also been fortunate to add a couple of skilled professionals so that we can do our best to continue to assist you with your estate planning needs. Please allow me to introduce our law firm:
Tylo is the newest member to our firm and is training to support the client services part of our office. She adds her cheery uplifting personality and willingness to help each client to the best of her ability. During her out of office hours she has a part time job as a waitress and loves to help with her grandma when she can.
Tamlyn will be making a year to Stephen’s firm and is currently working as the client services assistant. She brings her friendly customer services experience to the office. On her down time, you can find her working at the part time job as a hostess as well as hanging out with family and loved ones.
Aaron started his journey at our office as an intern in 2017 and rejoined our office in March 2022 as an Administrative Assistant. Currently, he assists with preparing funding recommendations and Estate Plan binders for our attorneys review. Outside of the office, he enjoys spending time with friends & family, live music, and photography.
Christina is currently part of our estate planning paralegal team. She has worked with us for a few years and enjoys helping our clients through the planning process. Though she graduated from the University of Hawaii with a Bachelor’s of Science in Marine Biology, she enjoys trust and estate work and is eager to assist you with your estate planning needs. Reach out to her anytime if you have questions, especially if it has to do with what the difference is between a Moorish Idol and a Pennant Butterflyfish! Christina enjoys her time training for and participating in Triathlons.
Stacie has recently been promoted to office manager. In addition to managing a vibrant and robust law firm, Stacie continues her work as legal assistant in estate and trust administration. She recently welcomed her baby daughter, Kailani, last year, her final addition to her tribe of 4 boys. To balance the work life, she enjoys family time and can usually find them outdoors at parks, the beach or pool.
Types of Assets
Your estate is made up of different types of assets. There’s real estate, stocks and bonds, cash, life insurance, partnership interests, annuities and personal property, such as a car, jewelry, furniture and furnishings. Your will and/or trust will direct how these assets are distributed after you die. How to divide your assets among multiple beneficiaries is one of the main challenges in making your estate plan. For example, how do you divide a house among three children? How do you distribute a bond to two trusts? As you work through your own estate planning, please consider the following points.
Cash is King
Cash is the easiest asset to distribute among multiple beneficiaries. By directing your trustee to sell or liquidate all of your assets, including stock and real estate, you can ensure that each of your beneficiaries receives the same amount of cash and the same asset. Distributing cash can also minimize the risk of one child feeling he or she has been treated unfairly or that another child received a “better” asset. It can also give you peace of mind not to worry about which child can afford to keep the family home. It can help preserve family harmony by not making your children co-owners of a piece of property and having to decide whether to rent or sell the property, who gets to live there, what repairs are necessary. In addition, because assets held in your revocable trust will receive a step-up in basis upon your death, your beneficiaries will bear little to no capital gains tax on the sale of stock or real estate since the capital gain is based on appreciation from the date of death value to the date of sale price. Receiving cash allows each beneficiary to be the sole determinant of how the cash is used. This allows for an efficient use of an inheritance and minimizes the risk of conflict among the beneficiaries as they can make decisions without needing approval by other beneficiaries.
Dividing up the Real Estate
On the other hand, dividing real estate fractionally among several beneficiaries comes with a host of issues. Receiving a fractional interest in real estate often means fractured relationships along with it. It is not that beneficiaries are trying to steal from one another, it is simply that the common goal of ownership disappears with the passing of the surviving parent, or property owner. Multiple beneficiaries of undivided real estate will have different needs and goals for this one property, which can potentially cause friction among the family members. If one child wants to sell his interest and none of the other children can buy him out, what happens? If one child cannot pay his share of the expenses for the house, what happens? If one child wants to live in the family home, how do the other children determine a fair rent? Co-owning real property is difficult. One way to resolve this problem is for the Trustee to sell the real property, but first offer the property to all of the children. We have set up a process that the Trustee can follow to help ensure that the process is as fair as possible by having the Trustee obtain an appraisal of the property and offering the property to the beneficiaries at the appraisal price. If no beneficiary is interested, then the Trustee can list the property on the open market. The net proceeds – cash – will then be distributed to the beneficiaries.
Personal Property
Everyone owns personal property; some of it is of sentimental value, like a treasured watch that may or may not work, some of it is artwork or antiques which may be valuable if appraised. Some of it is junk. How do you go about distributing assets that have different values to multiple beneficiaries, in equal shares without causing conflict?
First, we recommend and encourage each client to spend time considering their items of personal effect. Then fill out and complete the Personal Property Memorandum we provide to each client, identifying how you want to distribute each group of assets. For the pieces that are particularly sentimental or of significant financial worth, we recommend that the client be clear as to how each asset should be disposed of and use the Personal Property Memorandum to document his or her wishes. If there are assets of significant worth but of little sentimental value, consider directing the Trustee to liquidate such assets.
With respect to the assets of both significant worth and sentimental value, direct the Trustee to have the beneficiaries draw cards, then take turns, highest to lowest, allowing each beneficiary to select one item of your remaining personal effects not disposed of otherwise. Repeat this process until all such personal and household effects have been distributed. Any collection of items, including, but not limited to, stamps, coins, bottles or clocks, can be treated as a single item. Any questions as to whether or not an item is a single item, a collection or an item to be included in a single lot shall be decided by the Trustee. Do the same with the assets of little financial worth, but significant sentimental value.
With regard to the assets which have no financial worth and no sentimental value, provide instruction to the appointed Personal Representative of Trustee to either discard these items or donate to charity, at their direction.
These are recommendations, and each family has a unique accumulation of personal effects, so there is no one way or right way to resolve giving away your assets. The main idea is for you to intentionally consider your personal effects in order that your wishes are honored, and we preserve relationships as best as possible.
Contact us for your very own complimentary Heartfelt Personal Property Memorandum.
Minimize The Risk of Conflict Among Beneficiaries and Loved Ones
Among the greatest concerns expressed by clients is avoiding probate and minimize taxes. We make sure that address these concerns with each client. Other wishes expressed by virtually each client is that their beneficiaries honor their wishes and not argue and fight over inheritances.
Sadly, we are observing a significant uptick in family fighting over inheritances leaving many families relationally fractured and the estate assets dwindled due to attorney’s fees. No one establishes an estate plan that would risk a family fight.
We all need to pay greater attention to the relational aspects of estate planning to minimize the risk of argument later. One recent article analyzed the effect of crafting an estate plan and the reduction of risk of conflict. The article concluded that certain elements of family relationships determine the success of estate planning in minimizing conflict. And, that if the elements do not exist, or problems addressed, it doesn’t matter how well the estate plan is written. The estate plan reflects and mirrors the family relationships. The estate plan cannot fix family problems.
The questions that determine a successful estate plan:
1. Is there a sense of unfairness or inequitable treatment among the beneficiaries;
2. Does the family have a history of conflict;
3. Are there any major unresolved family issues including untreated addiction, spendthrift, or major conflict in the family.
If the answer to each of the above three questions is no, then beneficiaries will resolve any issues that come up, and the estate plan will be successful. If the answer to any of the above questions is yes, you will want to address the situation and do your best address the issue and resolve it. Otherwise, the risk of conflict will be great no matter how clever your estate plan is crafted.
Review, Review, Review
The mantra in a successful real estate purchase is "location, location, location". The mantra for successful tax minimization is "defer, defer, defer." And, the mantra for a successful estate plan is "review, review, review". Your estate plan must closely mirror and reflect your life at the time the plan was crafted.
Because your life and the laws that govern the way we live continuously change, you should review your estate plan every two or three years. Just think about how much our lives have changed within the last three years. Think of how much your children have grow and thing about what changes lie ahead – college for them, retirement for you. Your estate plan needs to be updated to ensure that it mirrors your current wishes and needs.
In the past handful of years, Congress and the State of Hawaii legislature have passed several laws that may significantly affect your estate plan. COVID has brought awareness that our life circumstances can take a dramatic sudden turn, and that we must accommodate these changes. By reviewing your plan every few years, we can accommodate change by adjusting your estate plan so that it naturally validates your life after you have died and affirms relationships among your surviving heirs. Through regular reviews, we, as your estate attorney, will help you avoid probate and minimize taxes, and help each of you assess your family dynamics to spot issues such as (1) what are the parental patterns of equality among children, (2) problematic relationships between and among beneficiaries which may include feelings of parental preference or inequality, (3) family problems that exist that may pose problems, such as a child’s pattern of drug abuse, mental illness or failure to become independent, and (4) how does the family problem-solve and resolve conflict?
Your estate plan will mirror or intensify emotions that occurred during your life with your family. In order for your plan to be successful, we will help you draft a plan that honors and respects your wishes but at the same time preserves relationships among your beneficiaries by asking you to consider the four issues above and engage in the often messy, vulnerable, and risky conversations with your family in order to resolve any outstanding issues now.