We know that owning a piece of paradise is a big deal. There is only so much land available and your real estate is unique to you. Plus, Hawaii's real estate laws are complicated and love a challenge.
We know that owning a piece of paradise is a big deal. There is only so much land available and your real estate is unique to you. Plus, Hawaii's real estate laws are complicated and love a challenge.
We know that owning a piece of paradise is a big deal. There is only so much land available and your real estate is unique to you. Plus, Hawaii's real estate laws are complicated and love a challenge.
We know that owning a piece of paradise is a big deal. There is only so much land available and your real estate is unique to you. Plus, Hawaii's real estate laws are complicated and love a challenge.
We know that owning a piece of paradise is a big deal. There is only so much land available and your real estate is unique to you. Plus, Hawaii's real estate laws are complicated and love a challenge.
We know that owning a piece of paradise is a big deal. There is only so much land available and your real estate is unique to you. Plus, Hawaii's real estate laws are complicated and love a challenge.
Avoiding Probate in Hawaii
There are 3 basic situations where you might find yourself stuck in Hawaii’s probate court, dealing with the distribution of your loved one’s assets. First, probate is required when someone dies without a will. This process is referred to as administration and it is governed by the Hawaii Revised Statutes. The executor and heirs are determined by law and in order to ensure the just administration of the estate, outside experts may be required and their fees will be deducted from the assets of the estate.
Second, you might find yourself in Hawaii’s probate court if your loved one died with a will and either (a) the estate is worth more than $100k, or (b) the estate owns real property. In either case, you can use an “informal” proceeding unless there is a reasonable likelihood of disputes or objections from family members, heirs, or disinherited heirs. The potential for conflict necessitates a “formal” proceeding.
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Third, even though the deceased might have created a living trust, probate needs to be opened when not all of the deceased’s assets were owned by the trust. This is often the case with an old bank account or vehicle. When a living trust is created, a pour-over will should be executed at the same time. This special type of will acts to transfer all of the deceased’s assets to the trust. So after a quick probate, the trust controls all of the assets and the successor trustee can now make the required distributions.
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To recap, the 3 main scenarios where probate will be required are when:
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The deceased doesn’t have a will;
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The deceased has a will but either:
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Has a total value of more than $100k
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Owns real estate;
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The deceased created a living trust but didn’t transfer all of his/her assets to it.
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What Happens If You Don't Plan Ahead?
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Probate is a court proceeding and it therefore requires time and money in order to be completed properly. The costs of probate are usually paid by the estate, which reduces the amounts that heirs will receive. It also opens the door to possible disputes among family members, heirs, and disinherited heirs. While probate is ongoing, heirs are losing potential rental income or the current value of the assets. There is the risk of changes in the market that significantly reduce the overall value of the assets. And financial obligations of the estate are not paused—the estate has to continue paying a mortgage, property taxes, association fees, etc. All of this effects (and usually reduces) what the heirs are intended to inherit.
What's the big deal about probate court?
And why does it matter?
All of this can be avoided or minimized to a known quantity with a legal consultation and a few essential documents. Depending on your situation (your assets and goals) there are many options. The advantages and disadvantages of each may vary for each individual, but they are generally accurate for everyone.
Transfer on Death Deed
Hawaii state law permits property owners to record a transfer on death deed, which is intended to minimize or eliminate the need for probate. This type of deed maintains your ownership of the property but specifies who is to take ownership when you pass away. As an automatic conveyance, there is very little paperwork needed to formalize this transfer after death and probate is not required. You might be wondering what happens if you change your mind later and want your real estate to go to someone else. A transfer on death deed can be amended and/or replaced at any time and the other thing that needs to be done is to draft, sign, and record a new deed.
This is advantageous for people whose real estate is their largest asset. One disadvantage is that if your other assets have a value of more than $100k, probate will still be necessary to transfer ownership of those assets.
Joint Tenancy with Rights of Survivorship
This is similar to a transfer on death deed, except that the beneficiaries are added to the title at the time of recording a new deed. It is most common for this type of ownership to be established on financial accounts, but it can be used for real property as well. We often see parents add an only child to their real estate title as a joint tenant with rights of survivorship. When both parents pass away, the child is automatically the sole owner of the property and only very minimal paperwork is required to establish this post-death.
This is advantageous because its operation is automatic, so there is no need for probate. It works well for families and heirs who have good relationships and who are committed to the arrangement. There are some risks that come with this for all of the involved parties. Using the example above, the child becomes an owner immediately and is therefore legally liable for the taxes, mortgage, and other obligations for the property. At the same time, the parents are forever joint tenants with the child and the child can only be removed from the title with the child’s consent.
Living / Revocable Trust
A trust is a legal fiction like a corporation; it is a separate entity from the creators of it. Trusts are controlled by a trustee or trustees whose duties and obligations are defined by a Trust Agreement. A living / revocable trust can be changed, modified, or cancelled at any time by the person or persons who created it because they are the initial trustees. Trust Agreements are very flexible, which means that they can have just about any terms, conditions, or requirements that you want.
But before a living trust is legally effective, it must own property. So, after a trust is created, it is critical that your real estate be conveyed to the trust. As soon as the real estate becomes an asset of the trust, the terms of the trust determine how the property should be managed, to whom it should be conveyed, and when it should be conveyed. Trusts are private arrangements and the probate court does not need to weigh in on transfers made according to the terms of it (unless there is a dispute or an objection to the trustee’s actions).
Living trusts are advantageous because they create privacy and offer great flexibility for defining exactly what you want to happen to your property. Privacy can be useful when the beneficiaries might not want the public to know what or how much they inherited—this is especially true in our small State of Hawaii where we’re all separated by just a few degrees. Trusts require some extra planning and attention during your lifetime to ensure that all of your assets are properly titled and owned by the trust. But a living trust can serve to completely avoid cost, time, and risks associated with probate court.
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