Comprehensive financial planning has three steps: accumulation, preservation, and transfer of financial assets. People naturally want to make money and protect what they've accumulated. The third step makes us think about what's unpleasant to consider: death, and other people acquiring our hard-earned savings. But for a believer, estate planning is among the most significant tasks God gives us.
A transfer of what you own is successful when the people you want to receive certain assets do so in line with the conditions and stipulations you have created. So here are five sets of questions you should answer so that your wishes will be executed as smoothly as possible:
(1) Who should receive what you own? Your surviving spouse is usually a natural selection, but how do you and your spouse want to transfer funds when the second spouse passes? If you are single, or are married without children, do you want the money to go to charity? Do you want to include nieces and nephews?
(2) What conditions or stipulations should you place on the transfer of money to heirs? It may seem harsh to put "rules" on the generous giving of funds to loved ones, but it is gravely irresponsible not to do so. Most people agree that allowing an 18-year-old to inherit a large amount of money in one lump sum is not prudent. Maybe you should stagger children's inheritances into partial payments at ages 25, 30, and 40. Consider giving them access for college or medical expenses only, with a lump sum distribution to take place later in life. It is your estate, and you are free to design this transfer as you see fit.
(3) What legal snags should you be aware of? Dealing with the loss of loved ones is a painful enough process without paperwork complications, but many states have expensive and burdensome probate processes. For most people, a Revocable Living Trust can make the inheritor's life easier. In some cases, a Trust may not be necessary, as long as your various financial accounts are titled correctly, or have Beneficiary Designations in place. Going account by account, be aware of what plan is in place for the various assets you do have. I often favor a comprehensive Trust document because of the ability it gives you to customize provisions (see No. 2 above).
(4) Who is trustworthy enough to oversee arrangements once you are gone? The selection of an "executor" or "trustee" is crucial. Some people of greater resources decide to use a corporate trustee, like a bank or a trust company. Those with grown children may feel that one (or more) of their children is capable of the task. Perhaps you have a close family relative or friend at your church who you feel is capable and willing. Give prayerful consideration to this matter, and make sure the person you select is ready to serve.
(5) What considerations are most important in terms of your value system and faith? This topic can be too complex for only one paragraph: including or not including unbelieving children; dealing with believing children who have not shown the responsibility necessary to inherit large sums of money; giving to charity; leaving an inheritance to your grandchildren (Proverbs 13:22); caring for aging parents, and on and on. Speak with your spouse, pastor, and loved ones about potentially complicated factors that affect your planning. It will make the final steps that much easier.
Estate planning is far more than just a financial matter. My next article will look to other related issues, such as child guardianship decisions and health-care wishes. In the meantime, give prayerful consideration to the five questions above. They form the beginning to a Christ-honoring plan for transferring that with which God has entrusted us.