What Do Other People Do?

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, their 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.

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.

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. One 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.

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.

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.

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.

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 are grown, 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.

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.