A forum for Hawaii's
business community to discuss
current events and issues
A forum for Hawaii's
business community to discuss
current events and issues
Time to grow | Check your coverage | Trust types critical
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The residential real estate market is being heralded as a bright spot in an otherwise bleak local economy. But the trends there are not all good news. Time to grow
Hawaii must balance importing
wealth and ideas with working
to create homegrown progressBy Stephany L. Sofos
There are many traditional reasons why the market is doing well -- low interest rates, pent up demand, moving money out of the stock market into harder assets -- but I believe the real reason is Hawaii is beautiful and everyone wants to live here. We rank as one of the top 10 most desirable places to live in the entire world, with some of the best weather and cleanest air.
ILLUSTRATION BY DAVID SWANN / DSWANN@STARBULLETIN.COM Understanding this, have you noticed how the roads are busier and the traffic is much heavier on any given day? When you go to shop, have you observed how homogenous malls have become, attracting national tenants while local retailers fall by the wayside? Has it occurred to you when you go out, you have to wait for everything now; to be served, to go into a movie, to find a parking space at the park or beach?
When reading about real estate development in the local newspapers, have you seen that a great many new developments are for retirement homes? Have you noticed that the professional jobs being advertised are for health care workers? There is such a desperate need for nurses, paramedics and caregivers that our educational system cannot produce them fast enough. And have you realized when looking around there are many new faces, mostly mainland transplants who are middle aged or older?
So what does this mean for people living here?
It means our state is fast becoming a bedroom community and retirement center for mainlanders, particularly those from the West Coast.
These transplants have grown tired of the hassles of big cities, the weather and crime. They are all looking for a more relaxed life. They want to enjoy our sun and surf.
But these new residents have inherited wealth or have pensions that are not taxed here. They have income sources outside of Hawaii and do not need to have a job or create a business to survive. With our property taxes, which are relatively low compared to most of the mainland, they can purchase housing and live large without much cost to them.
So while these new residents are enjoying our islands and creating opportunities for residential real estate sales agents to get rich, unless we diversify our economy quickly, rebuild our educational system and help local businesses survive so long-time residents will be able to have a similar lifestyle, we will have a two-tiered environment here very soon.
The division of haves and the have nots will widen, there will be a greater exodus of local born leaving for better opportunities and incomes and they will be replaced by immigrants or others coming from desperate existences. The local governments will be pressed to greater stress to provide social services and welfare assistance for many, and the quality of life will be strained for all.
Hawaii is truly one of the greatest places on Earth to live, so let's all remember to help each other, to assist the present businesses here to grow and survive. We all want new ideas to come to our islands so that we do not wallow in provincialism, but we need to recognize and maintain what we have here now. We are our own future.
Stephany L. Sofos is a real estate consultant and licensed broker and appraiser. She can be reached at stephany@slsofos.com.
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If you have not checked your disability insurance coverage lately, you might be in for a big surprise. Time for an
insurance check up?By Gary S. Kawamura
The insurance industry in general has gone though tremendous changes in the past 10 years, and that is true for disability insurance in particular.
With record claim losses, many once very prominent companies writing disability insurance have left the market, leaving not only fewer choices, but less qualified agents. Of the handful of companies still committed to the individual and business markets, all have changed their issue limits, medical and financial guidelines and occupational classifications. Contracts are now reflecting the adverse claim experience. Changes have occurred across the industry, affecting not only individual, but also group long-term disability and association-sponsored disability plans.
Many individuals, businesses and their advisors many not be aware of the changes.
If you are unsure of your coverage, here are some things to look out for:
>> If you have a group long-term disability or association plan, review it today. Changes to these plans can be made at any time without your permission and may have already been made without your knowledge. You may not have the same coverage you once did.
>> If you own an individual policy, review it today. Your benefits may be too low for your current income. Your occupational classification may have been upgraded. You may have features and benefits that should be reviewed.
>> If you are looking for coverage, seek an advisor qualified and experienced in this specialized area of insurance. Look for companies that have a good track record and are committed to the market. All disability insurance is not the same.
>> Get the appropriate level of coverage in place now, while you are financially and medically healthy. Do not wait until you get injured, sick or become uninsurable.
>> Policy reviews are not just necessary to keep an eye out for negative changes in you coverage. A few of the industry changes may work in your favor. Also, personal or business changes may have occurred that put you into a more favorable position. Your health may be better or you may have switched to a less hazardous occupation.
>> There may be other disability concerns that you may have overlooked. Business and professional overhead coverage, disability coverage for business loans, buy-sell disability plans, supplemental executive coverage, disability protection for retirement contributions and voluntary plans may serve your needs.
Gary S. Kawamura is a disability insurance specialist at Guardian. Reach him at 948-8405 or visit Gary_Kawamura@glic.com.
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As most people have heard, trusts are perhaps the most useful tool in estate planning. They help manage assets during life and long after we are gone. YOUR ESTATE MATTERS
Tax bite varies depending
upon the type of trustPlanning in advance can save money later
By Judith Sterling and Michelle Tucker
When you place assets in a trust, the trust gets legal title to the assets.
But, who pays income tax on interest, dividends, gains and other income generated from the assets when they are in the trust? This depends on the type of trust.
For income tax purposes, there are generally two types of trusts, "grantor" trusts and "non-grantor" trusts.
With a grantor trust, all of the income and deductions flows to the income tax return of the creator of the trust, the "grantor." In fact, a grantor trust typically uses the social security number of the grantor as its taxpayer identification number.
A revocable living trust, the most common type, is a grantor trust while the grantor is alive. Certain powers held by the creator of the trust, such as the power to revoke the trust, cause the trust to be a grantor trust.
Other technical administrative powers also can cause a trust to be a grantor trust.
If a trust is a not a grantor trust, it is a non-grantor trust. With a non-grantor trust, the trust has a separate taxpayer identification number, which is like the trust's own social security number.
The trust's income and deductions go on its own return. While an individual files a Form 1040, a non-grantor trust files a Form 1041.
If such a trust makes distributions to a beneficiary, in general those distributions carry any taxable income the trust has to the beneficiary, up to the amount of the distribution.
So, if the trust earns $1,000 of income and distributes $400 to a beneficiary, $400 of income is taxed to the beneficiary and the trust gets an offsetting deduction, so that $600 is taxed to the trust itself.
If the trust has the same income and distributes $3,000, the full income of $1,000 is taxed to the beneficiary and nothing is taxed to the trust. The additional $2,000 is considered a distribution of principal and is not taxed to the beneficiary.
If a non-grantor trust is a Hawaii trust, then Hawaii Income Tax Form N-40 must be filed for the trust and there may be income tax due to the state. There are times when a non-Hawaii, non-grantor trust will require Hawaii income tax reporting for income considered Hawaii income.
For example, a non-Hawaii trust owing rental property in Hawaii needs to file Hawaii income tax returns.
Of course, if you are a trustee, it is important to consider the income tax brackets of the beneficiaries and of the trust itself when deciding on when and to whom distributions should be made.
An attorney specializing in tax and estate planning can help you plan or administer a trust in a manner that maximizes tax savings while minimizing headaches.
Judith Sterling and Michelle Tucker are partners in the Honolulu law firm of Sterling & Tucker. Reach them at 531-5391 or visit Web sites www.sterlingandtucker.com or www.hawaiielderlaw.com.
To participate in the Think Inc. discussion, e-mail your comments to business@starbulletin.com; fax them to 529-4750; or mail them to Think Inc., Honolulu Star-Bulletin, 7 Waterfront Plaza, Suite 210, 500 Ala Moana, Honolulu, Hawaii 96813. Anonymous submissions will be discarded.
