Wealth Management in Hawaii

What wealth management means in Hawaii

Wealth management is a service for people whose finances have become complicated enough that one decision touches several others. Selling a rental changes your tax bill, your portfolio mix and your estate. Leaving a business to a child affects insurance, retirement and fairness among siblings. A wealth manager looks at the whole picture and coordinates the pieces, often working with your accountant and an estate attorney.

In Hawaii the picture usually looks different from the mainland version. According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, the median home value is about $839,100, the median household income is about $100,389 and about 63.0 percent of homes are owner occupied. For many families the house, a second property or a share of land is worth more than every investment account combined. That is a strength, since Hawaii real estate has held value over long periods, and a weakness, because a plan with one big asset is hard to adjust.

Who tends to use wealth management here

There is no fixed asset minimum that defines wealth, and firms set their own cutoffs. In practice the people who benefit most share a few traits. They own real estate on more than one island or a rental in Waikiki or Kihei. They have sold a business, received an inheritance of land, or accumulated stock in an employer such as a utility, a bank, an airline or a hospital system. Or they are physicians, attorneys and executives in Honolulu whose income puts them in a high state bracket and who want a single point of coordination.

If your finances are simpler, a financial planner may cost less and still cover what you need. A planner is often the right first step for simpler finances.

When real estate is most of your net worth

A household with an $850,000 home, a $500,000 mortgage and a modest brokerage account has most of its wealth in one place. If values rise, the family does well. If a hurricane, a rise in interest rates or a local downturn hits, the same family has few options. A wealth manager will measure how much of your net worth is tied up in property and will ask whether your liquid savings could carry you through a long gap in income or a large repair.

Possible steps include building a larger cash reserve, directing new savings into diversified funds instead of more property, and using a home equity line only for planned needs. Some owners sell a rental that no longer fits and use a federal like-kind exchange to defer tax on the gain, which only works under strict rules and deadlines. Ask your tax professional before you list anything. Our investing guide explains how diversified portfolios are built.

Leasehold interests and fee simple land

If you own a leasehold home or condo, the lease is one of your most important assets. A long lease with fixed rent can be worth nearly as much as fee simple ownership. A lease with five or ten years left, or one about to reset to a much higher rent, can lose value quickly and be very hard to sell. Wealth managers review the date and terms of each lease, estimate what a reset could cost and plan for what happens at expiration.

Hawaii has laws that, in some cases, let owners of certain leasehold residential property seek to buy the land under their homes, but the rules are technical. If you hold fee simple land that you lease to others, a different set of questions arises about rent income, taxes and succession. In each case a real estate attorney should read the documents, and your advisor should model the numbers.

Short-term rentals and investment property

Vacation rentals can bring in strong income, and they can also bring risk. Counties regulate where and for how long a property may be rented, and rules on Oahu, Maui and elsewhere have tightened over the years. Rental income is subject to the transient accommodations tax and the general excise tax, as well as income tax, and each has its own filing schedule. A wealth manager will estimate the true return after taxes, insurance, management fees, vacancies and repairs, and compare it with a plain index fund.

If you live outside the state and own Hawaii property, remember that sellers who are nonresidents face withholding at closing under state and federal rules. Plan for cash flow before you sign a sales contract.

Estate tax and the cost of waiting

Hawaii has its own estate tax, and its threshold is far below the federal exemption. A couple with a house worth $900,000, retirement accounts, life insurance and some land may be closer to the state threshold than they think. Hawaii has no inheritance tax. Because the state exemption does not follow federal changes automatically, married couples can pay unnecessary tax if documents are not drafted with it in mind. An estate attorney can use trusts and gifting to reduce the exposure. Confirm the current threshold with the Department of Taxation or an attorney.

Owners who want protection from future creditors may ask about self-settled asset protection trusts, which Hawaii permits with limits and waiting periods. Our estate planning guide explains the basic documents every family should hold.

Planning for a larger estate?

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Family land and ohana planning

Many local families hold land together, sometimes passed down from grandparents to dozens of cousins. Shared ownership can be a source of pride and a source of conflict. If one co-owner dies without a will, the share passes by law to heirs who may never have met. If one wants to sell, others may be forced into a court-ordered sale. Families sometimes solve this with a trust, a limited liability company or a written agreement about who may live on the land, who pays taxes and how shares transfer. A wealth manager coordinates with an attorney and sets aside money so that taxes and upkeep are paid without conflict.

Some Native Hawaiian families hold or are waiting for a homestead lease through the Department of Hawaiian Home Lands. Rules for succession and financing are specific, so involve the department and an attorney before you make plans around such a lease.

Business owners and the sale of a company

Family restaurants, contracting firms, farms and ranches, and tourism operators are a significant part of the economy. An owner of a business worth a few million dollars typically has most of the family’s wealth in a company that cannot be sold quickly. Wealth managers help owners plan the exit, set aside personal savings outside the business, buy insurance that protects the company if a partner dies and decide how a sale would be taxed. Federal capital gains rules apply, and Hawaii taxes gains at a lower rate than ordinary income, so the structure of a sale can matter.

Charitable giving

Many families give to schools, churches, cultural groups and environmental causes. Giving appreciated shares instead of cash can avoid capital gains tax, and a donor-advised fund lets you take the deduction in a high-income year and distribute gifts over time. Local community foundations and the University of Hawaii Foundation accept gifts of various kinds, and a wealth manager can help you compare options. Confirm deductibility with your tax professional.

How to choose a wealth manager in Hawaii

1. Check registration. Search the advisor in the SEC adviser database and FINRA BrokerCheck, and ask the Securities Compliance Branch of the Business Registration Division about state registration.
2. Ask about the team. Learn who handles tax coordination, estate planning and insurance.
3. Request a fee schedule. Wealth managers often charge a percentage of assets that declines at higher levels, so ask for the full table.
4. Read the disclosure form. Form ADV lists conflicts, services and any history.
5. Ask about real estate experience. A manager who has never worked with leasehold interests or family land may struggle with yours.
6. Confirm communication. Find out how often you will meet and whether video calls are an option.

What wealth management costs

Most firms charge a percentage of the assets they manage, commonly around one percent a year, with a lower rate as the balance rises. On a $1,000,000 account, one percent is $10,000 a year. Some firms charge flat retainers for planning, which suits people whose wealth is mostly in property that is not under management. Ask whether real estate counts toward the fee, what services are included and whether there are extra charges for tax or estate work.

Insurance gaps on valuable property

The larger the property, the more a gap in coverage costs. A standard homeowners policy in Hawaii leaves out flood, and a hurricane can carry its own deductible set as a percentage of the insured value. On a $1,200,000 home, a two percent deductible means the first $24,000 of a storm loss is yours. Wealth managers ask to see every policy, add up the deductibles and check that the dwelling limit matches the real cost to rebuild at current prices, which have risen faster than many owners assume. They also look at liability limits and may suggest an umbrella policy, since a lawsuit can reach assets beyond the house. Coverage for the life of the owner matters too, and our life insurance guide explains how it supports an estate plan.

Income planning for property rich retirees

A retired couple may own a paid-off home and a rental yet have a modest monthly income. The challenge is turning equity into cash flow without selling the family home. Options include renting a room or an ohana unit where county rules allow, downsizing and investing the difference, or taking a carefully chosen home equity loan for a specific need. Each has a cost in tax, risk or flexibility. A wealth manager can build a schedule of withdrawals that draws on taxable accounts, retirement accounts and property in a sequence that keeps tax in check. Our retirement planning guide covers the basics of drawing income from savings.

A yearly review that keeps the plan current

A wealth plan is not a document you file away. Each year a good advisor reviews property values, lease dates, loan rates, insurance renewals, beneficiary forms and any change in tax law. They also check whether the family has changed, through a marriage, a birth, a death or a move to another island. Bring last year’s tax return, the latest statements and any letters from the county about assessments or from the state about the estate tax. A short annual meeting prevents the slow drift that leaves outdated documents in a drawer.

Frequently asked questions