Understanding the Hawaii Estate Tax: A Guide
Understanding the Hawaii estate tax, including why the state has an estate tax and how the tax fits in with federal tax rules.
Hawaii estate tax affects only larger estates, but it matters for anyone with property in the Islands. Understanding how the state got its own estate tax—and why it remains today—can help you plan with fewer surprises.
For decades, most states didn’t run standalone estate taxes. Instead, they used a “pick-up” tax that matched a federal credit; the state simply “picked up” part of the federal tax bill. When Congress began phasing out that credit in 2001, pick-up taxes faded.
Hawaii responded by enacting the Estate and Generation-Skipping Transfer Tax Reform Act (HRS Chapter 236E). The act applies to estates of residents and to nonresidents with Hawaii property for transfers after January 25, 2012. The policy tracks federal rules in many places but sets its own exclusion amount and rate table.
Hawaii estate tax isn’t about penalizing success. Rather, it’s a targeted system, built after the old pick-up era, that funds state priorities while aiming squarely at the largest estates. The basics: Hawaii’s progressive estate tax applies above a $5.49 million exclusion, with rates from 10% to 20%. (Note: The state has no inheritance tax.)
Why Hawaii Kept an Estate Tax
Three reasons stand out.
Stability. Hawaii’s budget relies on a relatively narrow tax base. A state-level estate tax offers diversified revenue that isn’t tied to tourism cycles alone. Many states take the same approach. Hawaii is one of a small group (alongside, for example, Massachusetts and New York) that still levy state estate taxes.
Progressivity. The tax applies only above the Hawaii exclusion (fixed to the federal 2017 level of $5.49 million). It rises with estate size—10% up to as high as 20% for very large estates. That design aims the burden at the top while leaving most estates unaffected.
Coordination with federal law. Hawaii estate tax piggybacks on federal concepts—taxable estate, deductions, and elections. Therefore, administration is simpler. In practice, many of the calculations align with the federal estate tax framework.
Who the Tax Touches
Honolulu Homeowner With a Growing Portfolio
Imagine a longtime Honolulu resident who owns a primary home and a small apartment building. Together, they’re worth $6.5 million after liabilities, plus investments. If the taxable estate totals $6.2 million, only the value above $5.49 million is subject to Hawaii estate tax. In short, $710,000 faces Hawaii’s progressive rates, not the full estate. That’s a key point many people miss.
Maui Condo, Mainland Resident
Nonresidents aren’t off the hook. Let’s say a California resident owns a $2 million Maui condo and passes with a federal taxable estate of $10 million. Hawaii prorates the exclusion, and the state taxes just the Hawaii-situs slice. (States give credits to avoid double-taxing the same property. That’s how Hawaii coordinates with other states’ estate or inheritance taxes.)
Married Couple Electing Portability
Hawaii allows “portability” of the state exclusion. If Spouse A passes and the estate files a Hawaii Form M-6 to elect portability, any unused $5.49 million exclusion can carry to Spouse B. Practical upshot: a couple can shield up to $10.98 million at the state level with timely filing. That’s true even when no tax is otherwise due. The return is required to capture that benefit.
How Hawaii Estate Tax Fits With Federal Rules
Federal estate tax has a much higher exclusion (indexed annually), but the structure is similar. Only the amount above the exclusion is taxed. Many estates owe nothing federally yet can still owe at the state level. Or they need to file in Hawaii to elect portability even when no Hawaii estate tax is due. Knowing both thresholds avoids leaving benefits on the table.
Planning Takeaways for the Hawaii Estate Tax
Know the $5.49M line. The exclusion isn’t indexed; it’s fixed at the 2017 federal level. Growth in real estate can push estates over that line.
Portability matters. Filing the M-6 on time can preserve a second exclusion for a surviving spouse, even when no tax is due at the first passing.
Own property but live elsewhere? Hawaii can tax Hawaii-situs assets in a nonresident’s estate. Credits help prevent double taxation.
(Read More: Learn about revocable trusts in Hawaii versus Nevada.)