We are excited to bring you the second part of our estate planning series where we emphasize adding value and meaning to your legacy planning strategy. Ron Blue’s book Splitting Heirs was the catalyst for these posts and we hope you are deriving an immense amount of value from his principles and philosophy.
Today, we are going to dive into the connection between estate planning and wealth while also exploring three additional principles to keep in mind as you create and revise your estate plan.
Before you begin creating your estate plan or as you move through rounds of revisions, start by writing a mission statement for your life. What are the people, places, and things that mean the most to you? How are you using your time and talents to honor and respect your values and all that they represent?
Your estate plan is highly personal, so don’t shy away from that in the creation process. By being candid about your values, you will be better able to divide your estate according to them. Let’s take a look at the connection between estate planning and wealth.
Estate planning and wealth
Ron’s book goes to great lengths to distinguish estate planning from wealth transfer. For Ron, wealth transfer is better suited for the process as it puts religion at the center as opposed to the estate itself.
This term gives more emphasis on impact to recipients, family input, honoring God, putting stewardship first, and changing ownership while also, but secondarily, seeking professional advice, strong technical support, and tax-efficiency.
Transferring your wealth involves complex social pressures and consequences. For many, the aftermath of death is a web of miscommunication, jealousy, confusion, and legal bills. But estate plans are so much more than that.
For Ron, employing tactics from Christian philosophy and biblical influence can help guide the wealth transfer process and make it into something beautiful, one where a true legacy is carved. Ron Blue is an avid Christian financial planner and ingrains his faith in each aspect of his work. Faith looks different to each person, and while you don’t need to believe in each spiritual reference they can help you look at estate planning in a new, holistic way.
Today’s principles are all centered around how to give wealth and tactics for managing relational and financial conflicts.
1. The Unique Principle
Each of your children has different needs, so why treat them exactly the same? For many years, it has been the norm for parents to divide their estate equally amongst their children. But that logic assumes that all of the children are in the same situation and doesn’t take into account the nuances of their lives. This brings about the unity principle:
Love your children equally and as such treat them uniquely
Let’s look at a scenario as an example. We will take a look at a hypothetical family: the Johnsons. Kathy and Ken Johnson are a wealthy couple who have two children Sarah and Sam. Sarah is a successful dermatologist, married to a school teacher and they have one child together. Sam, on the other hand, is struggling. Her partner left her unexpectedly, leaving her to work full time and care for their two children. Does it make sense for them to split the money equally between their children?
Many people, Ron included, would say no it doesn’t make sense to give equal money to a child who doesn’t need it and a child who desperately does. Kathy and Ken may decide to give Sam a larger inheritance in order to help her get on her feet and stay afloat. Each family situation is different and it doesn’t always make sense to split the estate equally amongst them.
The same would be true for a child who you know wouldn’t respect or manage the money wisely. You don’t want your estate squandered, and being vigilant about caring for your legacy is important.
If you do decide to give one child more than another, it is important to have a candid conversation about that. By explaining your reasoning and rationale, you will help ease tension and arguments after you are gone. This will help quell resentment either toward you or each other upon your passing. Remember, there can be unequal treatment with equal love. Be sure to stress that to them.
One roadblock many parents face is getting caught in the fairness trap. Adult children can be manipulative and spiteful when it comes to an inheritance. Examples could be:
- You paid for a downpayment on her house, but I don’t want to settle down so that money should be added to my inheritance.
- You paid for her wedding, but I am not married so I should get that back in the inheritance.
- My brother got an advanced degree and I didn’t so I should get more than him.
If something like this comes up for you, remember that you are in charge and you get to decide how, when, and why to spend your money. After all of this, you may decide to simply split your estate equally and that is ok as long as you make a decisive choice as opposed to a default one.
2. The Trust Principle
The nuts and bolts of estate planning can be complicated. Your needs will be different from those around you so be sure to seek out legal and other professional counsel to ensure that you are creating the most comprehensive plan for you. Some people choose to include a trust in their estate plan, which leads us to our next principle:
Never use a trust due to lack of trust
A trust is a fiduciary arrangement where assets are managed by a third party and later distributed to the named beneficiary. There are three people involved in a trust: the grantor, trustee, and beneficiary. The grantor is the person who establishes the trust. The trustee manages the trust and is responsible for distributing the funds to the beneficiary, or the recipient of the funds when they deem fit.
Since a trust is managed by an individual or corporation separate from the beneficiary, some people use that as a way to regulate cash flow and behavior and while that can be a useful strategy, it shouldn’t be the primary reason for creating one.
Something we run into is people wanting to establish a trust because they don’t have confidence in their spouse, child, or loved one to responsibly handle the money. This is not what a trust is for. Using a trust can help mitigate tax burdens, effectively manage your money, and can also act as a way to protect you and your loved ones.
3. The Expectation Principle
This series is meant to infuse value and purpose to your estate plan. One way to accomplish that is by verbally expressing and communicating your thoughts, goals, and expectations for your estate with your loved ones. The expectation principle states:
Communicate to align expectations with plans
You are the best person to communicate your wishes because you know the reasons behind them as well as the drive and motivation for creating them. When you have clear communication surrounding your estate plan, you leave no surprises and get everyone on the same page. This can help alleviate stress, confusion, and arguments amongst your family after you pass.
Who better to communicate your wants, needs, desires, and hope for the future better than you? This is an important step, one that can’t be stressed enough. It is hard to talk about money, and mix it with death it becomes even more terrible. But it has to be done. Through communication, you are able to pass wisdom and provide an increased understanding for your loved ones.
Many children get anxious about inheriting an asset such as a house, business, or stock from a loved one because they feel pressure to use it in a certain way. Having a conversation about your wishes for the asset and hearing their ideas for it as well can be extremely helpful.
Talking about this stuff can be really hard, and some people avoid it in order to avoid conflict, but most of the time the opposite is true. By not talking and putting off tough but necessary conversations, more tension and heartache can happen. Be honest and open both for your sake and your loved ones.
Estate plans can be tricky but they can also be a beautiful representation of what you stood for throughout your life and how your legacy will impact generations to come. Here at TFS, we want to help you add value to your estate plan. Working in concert with your other legal and estate planning professionals, we would like to help you create a plan that you will be proud of. Schedule a call with us to get started.