What
Do Other People Do?
What
considerations are important in selecting a guardian?
How
should a trust be structured for my children?
What
are some ways of structuring my children's inheritance?
Should
all my children be treated the same?
How
do people decide how much to leave to children?
Should
I leave an inheritance to my grandchildren?
How
much do people leave to charities?
I'm
confused about wills vs. revocable living trusts.
What
considerations are important in selecting a guardian?
One of the
most important things families need to address, regardless
of estate size, is the question of who should take responsibility for
raising minor children if Mom and Dad die prematurely. Deciding whom
to name as guardian for your young children is critical.
We recommend
that you select as guardians a couple who share your spiritual values,
first of all, and who will raise the children using the same godly principles
that have guided you.
It's also
important that they be in the same stage of life as you; couples
who have already raised their children (including your own parents)
may not welcome the challenge of starting afresh to raise the children
you leave behind.
Another
important consideration has to do with the location of the
guardians. We recommend that you choose guardians who live nearby, if
possible, so your death does not also mean that the children will be
uprooted from their neighborhood, their church, their school friends,
etc., and moved to another city or state. The trauma of losing Mom and
Dad could be dramatically magnified if a cross-country relocation is
required.
How should a trust be structured for my children?
At the death
of the surviving spouse, if children are still too young to
be responsible stewards of their inheritance, the entire estate typically
goes into a children's trust to be administered by a trustee you have
chosen ahead of time: someone who knows and loves the children, who
can manage money, and who can work with the guardian.
At some
point, the children will be financially mature enough to receive
the inheritance on their own without further supervision. Typically,
this might occur when the children have reached the age of 25 or 30.
Generally,
a children's trust is not divided among the children all at once.
The thinking is that if the parents die early, the children may miss
some important life lessons growing up; therefore, these trusts are
often terminated in stages, with perhaps a third going to them at age
25, half the balance a few years later, and the remainder another few
years in the future.
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What are some ways of structuring my children's
inheritance?
As already noted,
if the children are not yet old or experienced enough to be
entrusted with direct stewardship of their inheritance, their inheritance
should be in the form of a trust, and their access to those funds would
be through the approval of the trustee you have selected to manage the
funds.
Once the children
reach financial maturity, the traditional thing to do is to
terminate the trust and give the assets directly to the children, usually
in three increments. Increasingly, however, families are finding it
inappropriate to give all of the children's inheritance as an outright
gift of capital. A recent study indicates that the average outright
inheritance is spent within eighteen months of its receipt.
Sometimes, parents
are concerned that their children may not have the financial
wisdom to manage the capital wisely, so they choose to leave all or
part of the inheritance in the form of an income stream that could last
many years into the future - even for the children's lifetimes.
In other instances,
parents may be concerned about future liabilities associated with the
potential for lawsuits or divorces that their children may be subjected
to. In those instances, it makes sense for an inheritance to be protected
in a trust that can last for the child's lifetime, with the residue
passing to succeeding generations or to ministry at the death of the
child.
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Should
all my children be treated the same?
It's not
unusual to find that couples have put off their estate planning,
sometimes for years, because of lifestyle or work ethic concerns about
one or more of their children. We believe that it's important to return
to the fundamental definition of estate planning: determining the stewardship
of what God has entrusted to you when you can no longer serve in that
capacity yourself. The implications of this for families whose children
have varying levels of financial maturity or varying degrees of agreement
with the family's spiritual values should form the overall design of
your estate plan.
A careful
reading of Scripture relating to inheritance uncovers no example
of children all being treated the same; rather, in the Old Testament,
the guiding principle was that the oldest son received a double portion
of inheritance, and daughters were considered part of their husbands'
families as far as future financial support was concerned. While this
may sound jarring to our Western ears today, we can observe people around
us and quickly understand that God has given us different levels of
access to the riches of this life. Some of us may have stewardship over
a great deal of money, while others have struggled financially all our
lives.
In the end,
however, God tells us that He wants us to be content, and that
He wants us to trust His provision in all things. So, designing a "Christian"
estate plan has far less to do with the tools and techniques brought
to the table than it has to do with the process we go through to seek
God's will for the things He has entrusted to us. Generally, families
want to treat all their children the same, but in some instances, that's
just not wise.
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How
do people decide how much to leave to children?
Another
question that often arises is, "How much is enough" for the children?
Should I give my children as much as I can, or should I limit the amount
I leave to them? This is an issue that demands much prayer and wisdom.
Questions to take into account have to do with the overall size of the
estate and the tax impact of leaving larger amounts to children. Another
consideration should be to examine the values, work ethics, and lifestyles
of your children. Our understandable desire to be generous to our children
is often tempered by the realization that receiving too much too soon
may be more harmful than helpful.
The story
of the Prodigal Son tells of a father who readily gave a generous
inheritance to a son who had not yet learned how to be a good steward.
The prodigal blew the inheritance and ended up living with pigs. Ultimately,
this process of loss and devastation was redemptive in the prodigal's
life, and led to a wonderful reunion with the father. So it isn't our
purpose here to suggest what anyone "ought" to do; rather, we believe
it's important to think and pray about these considerations carefully
in planning for one's estate distribution.
A reading
of Genesis reveals that God has always intended for us to earn what
we have through our labor, rather than as an easy gift of worldly
goods; after all, in the Garden of Eden, Adam was given a work assignment-the
work of naming the animals. The primary thing that changed when sin
entered the picture is that God introduced sweat, saying that now we
would have to earn our living by the sweat of our brows. God intended
us to work from the beginning, but in His perfect design, our work was
supposed to be more easily productive; it simply became more difficult
after we entered into sin.
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Should
I leave an inheritance to my grandchildren?
Proverbs
13:22 says, "A wise man leaves an inheritance for his children's children."
On the surface, that Scripture might seem to imply the advisability
of establishing trusts for grandchildren, but a more thoughtful reading
suggests otherwise. It's difficult to imagine that this particular verse
advocates a financial inheritance when so many other verses in Scripture
describe the "things" of this world as destined for destruction and
decay.
The kind
of eternal inheritance that we can leave to our children's children
might include a strong local church where our loved ones can come to
Christ and grow in their understanding of Him, a healthy mission field
on which to serve, a place to receive an education with a Christian
worldview, or an outreach to the poor and downtrodden. These are inheritances
with eternal perspective and eternal worth.
Having said
that, grandparents are usually in a better position than their children
to provide such things as a Christian education, college costs, etc.
Obviously, the best way to benefit grandchildren along these lines is
to live long enough to make appropriate current gifts while you are
living. If you believe that your children are good parents, we would
generally recommend that gifts be left to your children for them to
allocate among their children in the way and at the time they deem best.
It's always
possible to create a trust for grandchildren to meet future needs,
and that trust can be administered by the children's parents or other
designated individuals. But when we recall that estate planning for
the believer is essentially the process of passing on stewardship responsibilities
at the time of our death, we encourage most people to defer commitments
to the grandchildren's generation - at least until the grandchildren
are old enough to demonstrate that they have a Christian worldview and
are living out a value system consistent with the Christian faith.
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How
much do people leave to charities?
There are
two overwhelmingly common ways that families determine the
allocation of their estates to ministries once their children are grown.
Keep in mind, we've said that as long as the children are young enough
to depend on the children's trust, nothing is given to charity. However,
once the children have been educated and helped into their first homes
to whatever extent the parents choose, many Christian families decide
to designate a tithe of their estate for the Lord's work. Tithing in
this context does not seem particularly Scriptural, since tithing in
Scripture relates primarily to income. In estate planning, remember,
we are determining the ultimate stewardship of the capital we have accumulated
over a lifetime of work. Nonetheless, tithing is a familiar percentage
to believers, so it's often the percentage that people choose to give
to ministries.
Even more
frequently than tithing, once the children are grown and independent,
we see families treating charities like one additional child. If a family
has three children, they might divide the estate into four equal parts,
giving each of the children 25% of the estate and dividing the remaining
25% among their charities. We refer to this as creating "a child called
charity." Families like this approach because it makes a clear statement
of the value they place on perpetuating and participating in God's work.
Thoughtful
planning can also result in capping the children's inheritance
at a certain level, and leaving the overage to ministry.
Two biblical
perspectives affirm the idea of leaving the estate to a combination
of children and charities. The first priority we see in Scripture is
that of dependency: Timothy says that we are worse than infidels if
we fail to take care of those in the household of faith. As a Christian,
it's difficult to imagine anything worse than being called an infidel!
The phrase "those in the household of faith" refers to our financial
dependents. Obviously, minor children are financially dependent on their
parents, and anyone who has raised children understands that their dependency
doesn't necessarily end the day the children turn 18. Financial dependence
can extend beyond that, hopefully on a diminishing basis, but experience,
wisdom, and Scripture all agree on the importance of children learning
to financially stand on their own. In much the same way, ministries
that have been important to us over our lifetimes-places where we have
worshipped, mission organizations in which we or our friends have served,
schools in which our children have been educated with a Christian worldview,
and other kinds of ministries that we have supported during our lives
- have become dependent upon us in a very real sense.
The second
biblical perspective that should inform this discussion is
that of love. John 3:16 says, "God so loved that He gave," and in that
context, we have the freedom to do whatever we feel God is leading us
to do for people and ministries that we love.
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I'm
confused about wills vs. revocable living trusts.
A quick
review of some of the basic estate planning tools and key tax
and probate rules will help you establish a framework for thinking about
the appropriate estate design for your unique situation. We begin by
considering the difference between probate and estate taxes, which is
an area of confusion for many.
Probate
is simply each state's set of rules for governing the administration
of your will, or for distributing all your earthly goods in
the event that you die without an estate plan. The term "probate" comes
from a phrase that means "proving the will," so, by that definition,
if a will is used to transfer assets to beneficiaries, those assets
will necessarily be subject to the probate process.
If you want
to avoid probate, your primary estate distribution document
should not be a Will, but rather a revocable living trust. A revocable
living trust is an instrument that you establish during your lifetime.
Like your will, the trust determines what happens to the assets of your
estate at the time of your death. Unlike a will, however, assets that
are in the revocable living trust at the time of death will transfer
to your beneficiaries completely outside the probate process.
When establishing
a living trust, individuals or couples typically name themselves
as trustees or co-trustees, and they maintain the ability to control
and benefit from their assets for the rest of their lives. If you are
incapacitated before death, a successor trustee named ahead of time
will manage the assets of the trust for your benefit. Then, when death
occurs, the assets that you placed in the trust during your lifetime
will be transferred to your beneficiaries free of the probate process.
A specific
review of the rules in your state and your assets will determine
whether avoiding probate is important in your particular situation.
The costs of probate vary significantly from state to state; in many
states, the costs are quite limited, while in other states, they can
be substantial.
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