Hawaii Estate Tax Planning
Last updated: 9 Nov 2025
Hawaii Estate Tax Planning — Strategies That Work
How to reduce Hawaii estate tax for residents and nonresidents with Hawaii-situs property: marital & QTIP planning, credit shelter trusts, lifetime gifts, valuation and liquidity strategies, and nonresident real estate considerations. Links to forms & deadlines, cases, calculator, and fixed-fee service packages.
Planning goals & common profiles
Typical goals
- Use marital & charitable deductions to defer or reduce Hawaii tax.
- Preserve a first spouse’s exclusion with credit shelter design.
- Coordinate QTIP elections with federal planning for survivor protection.
- Manage nonresident exposure on Hawaii real/tangible property.
- Right-size liquidity (life insurance, note financing, § 6166-like federal relief considerations) for cash due.
Who benefits most
- Hawaii residents with estates around or above the state exclusion.
- Nonresidents owning Hawaii real estate (condos, houses, tangible property kept in HI).
- Married couples seeking survivor protection plus tax efficiency.
- Families with closely held businesses or fractional real estate interests.
Marital & QTIP planning
Core moves
- Structure marital deduction transfers (outright or in trust) to defer state and federal tax where aligned with family goals.
- Consider a QTIP trust for the survivor to balance control, income access, and tax deferral (Hawaii planning tracks federal concepts).
- Align beneficiary designations and titling (POD/TOD, retirement accounts) with the marital plan to avoid accidental funding errors.
Portability & elections
- Portability is a federal election on IRS Form 706; it can preserve unused federal exclusion for the survivor (DSUE) even if no federal tax is due.
- For Hawaii purposes, practitioners typically rely on **credit shelter** and **QTIP** design; coordinate elections so the state result matches intent.
See the Hawaii cases page for interpretive trends.
Credit shelter (bypass) trust — preserve exclusion
- On the first death, fund a credit shelter trust up to the intended exclusion to shield growth from Hawaii estate tax at the second death.
- Draft with discretionary distributions to survivor and descendants; manage step-up basis trade-offs with formula clauses or “optimal basis” provisions.
- Coordinate with federal portability so the overall federal+state position (tax + basis) is improved rather than one-sided.
Lifetime gifts & basis trade-offs
When gifting helps
- Shift future appreciation out of the taxable estate.
- Use valuation strategies (minority/marketability) where appropriate and supportable.
- Leverage annual exclusion and informed use of lifetime exclusion at the federal level.
But watch basis
- Gifts carry the donor’s basis; consider keeping highly appreciated assets for a potential step-up at death.
- Model the combined federal + Hawaii outcome before large gifts to avoid over-sacrificing basis for modest state savings.
Nonresident owners of Hawaii real estate
For mechanics and filing, see Hawaii Nonresident Guide and Forms & Deadlines.
Valuation & liquidity planning
Valuation
- Use qualified appraisals for Hawaii real estate and closely held interests.
- Consider discounts where defensible; anticipate examiner scrutiny and support with narrative & comps.
- Review alternate valuation date (federal) implications on the Hawaii position.
Liquidity
- Map expected cash needs at 6/9 months post-death (state vs. federal timing) and align accounts/beneficiaries.
- Evaluate policy ownership and trust structures for life insurance (ILIT) to keep proceeds outside the estate if appropriate.
- For businesses, prepare a plan for installment/deferral options (federal relief) and collateral requirements.
Planning workflow & documents
- Profile the estate: residency, Hawaii-situs assets, current titling/beneficiaries.
- Model scenarios with the Hawaii calculator (federal + state).
- Choose marital/QTIP vs. credit shelter split; draft trust clauses (power to adjust, sprinkling, optimal basis).
- Align retirement accounts and life insurance with the plan (beneficiary updates, ILIT if used).
- For nonresidents, document situs, apportionable expenses, and liquidity sources.
- Maintain an exhibit list for filing (appraisals, trust instruments, elections) to expedite review.
FAQs
What are the key levers to reduce Hawaii estate tax?
Coordinate marital/QTIP design with a credit shelter trust, time/layer lifetime gifts (basis-aware), and manage valuation & liquidity so cash is available without forced sales.
How does planning differ for nonresidents with Hawaii property?
Nonresidents are exposed on Hawaii-situs real/tangible property. Planning emphasizes situs documentation, appraisal support, and liquidity; entity form alone typically doesn’t remove estate-tax exposure.
How do QTIP elections fit with Hawaii?
Hawaii planning follows federal QTIP concepts. Coordinate elections so the survivor is protected and the combined federal + Hawaii position is optimized.
Should we use portability or a credit shelter trust?
Portability is a federal election that can preserve unused federal exclusion. A credit shelter trust may still be preferred in Hawaii planning to shelter future growth and tailor control — model both before deciding.
Can you help us design and implement the plan with a fixed fee?
Yes — see our Hawaii Estate Tax Service packages for plan design, documentation, and filing coordination.
Ready to plan?
We draft coordinated federal/Hawaii plans (marital/QTIP/credit-shelter), model scenarios, and prepare filing packages with clear appraisals and elections.