Hawaii has no inheritance tax, but it is one of 12 states with an estate tax. In this detailed guide to the Aloha State’s inheritance laws, we examine this estate tax, along with other key inheritance laws, including rules governing intestate succession, probate and what makes a will valid. Remember, though, that estate planning is a complex endeavor, and many choose to work with a financial advisor to navigate the details and manage their inheritance.
Does Hawaii Have an Inheritance Tax or Estate Tax?
Like 37 other states, there are no inheritance taxes in Hawaii. However, it’s important to note that if you inherit property from someone who lived in a state that does levy an inheritance tax, you may be responsible for paying it.
Hawaii does levy an estate tax. It is progressive, meaning it is lower for lower-income earners, then gets progressively higher for higher-income earners. Rates range between 10-15.7% and the exemption is $5.49 million.
For 2020, a Hawaii estate tax report must be filed if the value of the estate is more than $5.49 million. This includes the value of all real estate, bank accounts, CDs, life insurance policies, retirement accounts, investment portfolios and other assets.
Keep in mind, there are some key differences between estate taxes and inheritance taxes. Estate taxes are taken out of the deceased’s estate immediately after their passing, while inheritance taxes are imposed upon the deceased’s heirs after they have received their inheritance. Hawaii also does not impart a gift tax, though the federal gift tax is applied once an individual is gifted more than $15,000 in one calendar year.
HAWAII ESTATE TAX RATES
|Taxable Estate*||Base Taxes Paid||Marginal Rate||Rate Threshold**|
|$0 – $1 million||$0||10.00%||$0|
|$1 million – $2 million||$100,000||11.00%||$1 million|
|$2 million – $3 million||$210,000||12.00%||$2 million|
|$3 million – $4 million||$330,000||13.00%||$3 million|
|$4 million – $5 million||$460,000||14.00%||$4 million|
|$5 million and up||$600,000||15.70%||$5 million|
*The taxable estate is the total above the exemption of $5.49 million.
**The rate threshold is the point at which the marginal estate tax rate goes into effect.
Other Necessary Tax Filings
- Estate taxes: Hawaii imparts an estate tax on inheritances of more than $5.49 million. This tax rate is progressive and ranges from 10-15.7%.
- Inheritance tax from another state: While Hawaii does not have an inheritance tax, if you inherit an estate from someone living in a state that does impart these taxes (like Iowa or Kentucky), you will be responsible for paying them.
- Federal estate tax: Regardless of the state in which you reside, the federal estate tax is applied if an inherited estate is more than $11.58 million in 2020. Though keep in mind that you are only taxed on the overage, not the entire estate. This tax rate can be as high as 40%.
To file any of these estate-based returns, you’ll need to apply for an employer identification number (EIN) with the IRS. You can do this online, by fax or via mail.
Dying with a Will in Hawaii
Regardless of a state’s intestate succession laws, it’s always best to leave behind a valid will and last testament. That’s because it provides you with the most control over how and to whom your estate is distributed.
Dying with a valid will and last testament in place is referred to as dying testate while dying without a valid will and last testament is called dying intestate. If you die intestate, your estate will be subject to your state’s inheritance laws and the distribution of your assets could be forced to pass through probate.
For a will to be valid in Hawaii, you must be at least 18 years old, of sound mind, the will must be signed by the testator (the person who created the will) with at least one other person in the testator’s presence, and two witnesses, it must be in writing, and it must name a beneficiary.
An estate skips probate in Hawaii if it’s less than $100,000. Skipping probate could be beneficial, as the probate process in Hawaii can be an extremely long one.
The probate process in Hawaii can take one of three paths: informal probate, which takes place outside the court when no disputes are anticipated; unsupervised formal probate, in which parts of the process take place with court supervision; and supervised formal probate, in which the entire process takes place under court supervision.
Hawaii adheres to the Uniform Probate Code, a standardized set of probate procedures used across 15 states.
Dying Without a Will in Hawaii
If you fail to leave behind a valid will and last testament in Hawaii, the distribution of your estate will be subject to the state’s intestate succession laws. Your estate may also be subject to the probate process which, can be an extremely lengthy process.
Generally speaking, in Hawaii, your assets will pass to your closest living relative via the state’s succession laws or probate process. There are some assets that are exempt from the latter, such as jointly owned property in which the surviving owner becomes the full owner of the property, community property in which the property passes on to the surviving spouse, and any retirement accounts or life insurance policy benefits.
Spouses in Hawaii Inheritance Law
Spouses are generally entitled to your estate through the succession laws of Hawaii, which is not a community property state but how much depends on whether you have descendants or living parents.
If you die with a surviving spouse and no parents or descendants, your spouse gets everything. If you leave behind a spouse and descendants with that spouse, your spouse inherits everything.
If you leave behind a spouse, descendants with that spouse and your spouse has children from another relationship, your spouse gets $150,000 of your estate plus 1/2 of the balance, while your descendants inherit everything else.
Leave behind a spouse and children with someone other than that spouse, and your spouse gets $100,000 of your intestate property plus 1/2 of the balance, while your descendants get everything else.
Finally, if you die intestate in Hawaii with a spouse and living parents, your spouse inherits $200,000 of your estate plus 3/4 of the balance, while your parents inherit everything else.
Children in Hawaii Inheritance Law
Dying without a will in Hawaii means your children are entitled to a share of your intestate estate. But how much they receive depends on a few factors: if you have a surviving spouse; how many children you have; and whether they are children with your surviving spouse.
Under Hawaii inheritance law, if you die with children but no surviving spouse, your children inherit everything. If you die with a surviving spouse and children with that spouse, your spouse inherits your entire intestate estate and your children get nothing.
However, if you die with a surviving spouse, children with that spouse and your spouse has children from another relationship, the rules change slightly. In that case, your spouse gets $150,000, plus ½ of the estate balance, while your descendants inherit everything else.
If you leave behind a spouse and children with someone other than that spouse, your spouse inherits $100,000 of your intestate property plus 1/2 of the remaining balance, while your children inherit everything else.
Per Hawaii inheritance laws, children are only eligible to receive part of their intestate assets if they are legally recognized children. That means they must be legally adopted, born within marriage, and born outside of marriage if a marriage later occurred or paternity was established. Grandchildren are also eligible to receive a share if your child has passed before you.
Intestate Succession: Spouses and Children
|Inheritance Situation||Who Inherits Your Property|
|Spouse, but no children or living parents||– Entire estate to a spouse|
|Spouse and children with that spouse||– Spouse inherits everything|
|Spouse and children with spouse and someone other than a spouse||– Spouse gets $100,000 of your property plus 1/2 of the remainder. Children inherit everything else|
|Spouse and children with spouse and spouse have children from a previous relationship||– Spouse gets $150,000 of the estate, plus 1/2 of the balance. Your children get everything else|
|Spouse and parents||-Spouse inherits $200,000 plus 3/4 of the balance. Parents get the rest|
|Parents but no children or spouse||– Parents inherit everything|
Unmarried Individuals Without Children in Hawaii Inheritance Law
If you die intestate and unmarried in Hawaii, then your entire estate will first pass along to any surviving children in equal shares. If you have no surviving children but do have surviving grandchildren, the estate goes to them.
If you die intestate unmarried and with no children, then by law, your estate goes to your parents. While there is no common law marriage in Hawaii, it recognizes as valid any common law marriage originating in and recognized by another state or country.
If your parents are no longer living, your siblings are next in line. If your siblings are no longer living, their portion of your estate passes down to their children. If you die unmarried, without children, and without siblings, your grandparents would inherit your estate.
Keep in mind that these succession laws are only enacted in the case of an intestate estate. If a valid will and last testament are in place, they will take precedence over a state’s succession law
Intestate Succession: Extended Family
|Inheritance Situation||Who Inherits Your Property|
|Children, but unmarried||– Entire estate to children|
|Parents, but no spouse, children, or siblings||– Entire estate to parents|
|Parents are deceased, but no spouse or children||– Estate split among siblings in equal shares|
|Living parents or siblings||– Estate goes to siblings’ children, then grandparents|
Non-Probate Hawaii Inheritances
As with many states, there are certain assets that do not pass through probate. These include property in a living trust, life insurance policies, retirement accounts such as IRAs, 401(k)s and Roth IRAs, bank accounts that are payable on death or vehicles that are transfer-upon-death, and any jointly owned property.
Other Situations in Hawaii Inheritance Law
Hawaii’s inheritance laws also have a few idiosyncrasies. For example, if an heir was conceived before you died but born after you died, they are still entitled to their portion of your estate.
Also, half relatives are treated the same as whole relatives, and any heir’s immigration status does not affect whether or not they stand to inherit part of your estate. This is a very important distinction that aligns with the Hawaii family culture and can mean al the difference in how an estate is divvied up.
The Bottom Line
Hawaii does not have an inheritance or estate tax that someone inheriting property will need to pay directly to the state. However, if your estate is fairly large in value then you could be hit with the federal estate tax. There are also many rules to be aware of within the state of Hawaii if you or someone who is inheriting your property lives there.
Tips for Estate Planning
- Managing your own estate, or handling the intricacies of inheriting money from the estate of a loved one, can get complicated. That’s why many people choose to work with a financial advisor. If you don’t have an advisor, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re thinking through your estate plan, consider using our free checklist for things to do to prepare your overall estate.
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