We would like to begin today’s post with a couple of questions:
- What does wealth mean to you now?
- How does your definition of wealth alter when you look at it through the lens of your legacy?
Your attitude and philosophy concerning your wealth play an important role in your financial strategy—informing your habits, goals, actions, and conversations. The methods you use to plan for your wealth are important and can provide your heirs with the tools they need to both execute your estate and their inheritance in a thoughtful, wise way.
Estate planning is such an important piece of your financial plan which is why we are excited to bring you a two-part series dedicated to making your estate plan with deeper intention and greater value.
Our inspiration for this series came after reading Ron Blue’s book Splitting Heirs: Giving Your Money and Things to Your Children Without Ruining Their Lives. Ron is the best selling author and astute businessman who built two financial planning businesses and a website designed to aid financial planners to practice with Christian intention.
Steadfast in his faith in Christian teaching and philosophy, he wrote this book to help people bring intention and meaning into their estate plan, notably preparing the people on the receiving end. In this post, we are going to explore the basics of Ron’s decision-making process and 3 key principles to keep in mind as you create and revise your estate plan.
The 6 decisions in an estate plan
Estate planning is often approached from a technical angle. Drafting a will, avoiding estate taxes, understanding probate, establishing a trust. But there is so much more to estate planning than technical applications. It is the relational, familial aspects of estate planning that so many people get wrong. The ones where they slip up, avoid, or procrastinate until it is too late.
The main reason this happens is that people get hung up on the idea of wealth and wealth being reserved for those they deem wealthy. But your wealth is a culmination of your assets and no matter what at some point, someone will get your stuff. The idea here is to make your plan and your decisions with a principle behind them. Below are 6 steps that Ron says can help you do that
Decision 1: Transfer, To Whom Decision 2: Treatment, How Much Decision 3: Timing, When Decision 4: Title, What
Decision 5: Tools and Techniques, How
Decision 6: Talk, Communication of the above 5
He is very clear that this is a process, one that must be done in sequential order. Following this process, step-by-step will help keep your objective clear and keep you from becoming too overwhelmed or in the weeds.
1. The Treasure Principle
The first principle we will look at today is called the treasure principle, one that Ron Blue got
from his colleague Randy Alcorn and his book The Treasure Principle.
You can’t take it with you, but you can send it on ahead.
Your wealth doesn’t come with you when you pass away. It will be passed on to another person or entity, one who will then assume control over it. When you think about it, there are only three places that the money from your assets can go:
- Your children
- A charity
- The government
With options 1 and 3, if you are a single person with an estate value in excess of $11.4 million or married with a combined estate over $22.8 million, then at least part of your estate will be funneled to the government due to estate taxes. But it is important to note that money from your estate that goes to charity does not undergo estate tax. This really gets people thinking about the division of their assets and how to best use them so more of it goes to the people and causes that mean the most to them.
Here are a few questions to think through:
- How do you want your money to be used after you pass?
- How will your division of assets honor your values and hopes for the future?
These are tough questions; ones that challenge our preconceived notions of just dividing the estate amongst children. Think through what your estate means not only to you but also to the legacy and values you want to uphold.
If you decide to pass all or some of your wealth to your children, be sure that they are able to manage and use it wisely in a way that will amplify its impact. This leads us to our next principle, the wisdom principle.
2. The Wisdom Principle
The wisdom principle is simple but powerful:
Transfer wisdom before wealth
Another thing that Ron said in the book that we found particularly interesting was “wealth doesn’t create wisdom, but wisdom can create wealth.” Simply giving money without teaching how to manage or use it wisely won’t lead to automatic wisdom. But when you take the time to teach valuable financial lessons and prioritize education and responsibility, you set your children up for success, so much success in fact that they may not need your wealth at all.
Start talking to your kids about money early. Teach them the value of saving, setting goals, spending according to your values, giving back, and working hard for what they want. When you are open and transparent about financial responsibility, you will teach them what it means to be successful with their finances, giving them the confidence to handle them when they are on their own.
Keeping money a mystery won’t be helpful to them in the long run. Be sure you trust yourself and your children to be honest with them about money, instilling good habits as early as possible.
When you don’t need to worry about their financial stability or their ability to manage finances, you free yourself from worry or anxiety over your estate. Some families don’t want to give money to their children because they don’t trust them not to waste it. If you find yourself thinking about this at all, try and answer the questions below.
- What is the worst thing that could happen if they get the money?
- How serious is that?
- How confident are you in their ability to manage the money? Where are those feelings coming from? If they are negative, are you confident that they won’t change?
Your estate plan is yours to craft and many people want to include their children as part of that plan. If you do that, be sure you have a candid conversation with them about it, especially if you are concerned.
Talking about money is hard which has left some people to develop a lackadaisical approach to talking about it with their children, but it is important to care about how they will spend an inheritance. Take the time to nurture, teach, and educate them, to pass down the wisdom you have learned.
3. The K.I.S.S Principle
It can be really easy to get overwhelmed with estate planning tactics. As soon as lawyers get involved, it always seems to get more complicated. But when you are feeling overwhelmed, you can turn to Ron’s K.I.S.S Principle:
Keep it as simple as possible
Depending on the size of your estate, you will need different things. Always be sure to consult your estate attorney before making decisions or changes to your documents. But it is important to remember that simple can be better. You don’t need to have a complicated estate planning strategy in order to reach your goals and reduce estate taxes.
Estate planning can be complex, so work from the simplest solution and go from there. Employ advanced techniques the larger and more complex your estate becomes.
These principles were designed to help you bring meaning and value back to your estate plan. It isn’t an easy subject to cover, but it is an important one. One that establishes your legacy and tells the story of your values.
We are really excited to share these ideas with you today and can’t wait for our second piece in a couple of weeks. Do any of these principles stand out to you? Are you interested in how to incorporate these values into your estate plan? Give us a call and we would be glad to talk through that with you.