Estate Planning – Our Final Act of Stewardship

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An estate plan gives us all the opportunity to lay out a process for the management of everything we have even after we are no longer able to make those decisions.  This could include decisions related to our healthcare, our financial affairs, and ultimately the transfer of our assets upon death.  Did you know that even if you don’t have an estate plan in place, your state has a default plan for you?  However, just as you probably don’t agree with the way the government spends your tax money, you probably won’t agree with the management decisions they would make with the rest of your property either.

Estate planning is a difficult issue for a lot of people to deal with because it forces us to confront our own mortality and that’s not something most of us want to do.  Maybe that’s why over 60% of people don’t have a valid will.  Looking back through history, we see all kinds of examples of poor planning, such as Abraham Lincoln, who was one of the top attorneys in the state of Illinois in his day and still died without an estate plan.  There is a long laundry list of famous people who also died without estate plans, with Prince being one of the more recent ones.

As Christians, we have a responsibility to steward our assets up to the time they are passed on to someone else to manage.  That stewardship responsibility means we need to have plans in place to facilitate the management of those assets up to the point they’re no longer ours.

Not wanting to consider our own mortality is a poor excuse for a Christian.  Consider the words of Psalm 90:12, “So teach us to number our days that we may get a heart of wisdom.”  In our continual striving to attain wisdom, this verse tells us to think on our own mortality.  I recently read the following quote from Francis Chan, “A wise man thinks about his death often, and the fool ignores it. This is why the enemy keeps us from thinking and talking about death. And this is why we must work to keep the brevity of life on the forefront of our minds.”  When we act as if we’ll live forever, we ultimately make foolish decisions.  The knowledge of our limited time on this earth gives us the urgency to make the most of our days and to have our house in order for that day when we can no longer manage it.

What is Estate Planning?

Estate planning can simply be defined as the process through which we manage our assets and care during our lifetime and the organization and facilitation of transfer following our death.  As I mentioned above, our estate planning lays out the final steps of our stewardship journey.  It allows us to provide structure and organization to the management of everything from our healthcare to the ultimate passing of our assets after our time on earth is finished.

Estate planning is a broad topic that can utilize a wide range of tools and methods to accomplish specific purposes.  It’s probably safe to say that no two people should have the same estate plan since every situation is unique.  Following is a list of common estate planning tools that people use and a brief explanation of each:

Wills – A Will is a legal document that allows you to state who you are, who you want to be your heirs, how you want your assets distributed, and who you want to manage the process on your behalf (called an executor). It can also name guardians for any minor children.

Trusts – Trusts are legal entities, similar to a company, and can be created in many types for a variety of purposes ranging from making gifts to charity to avoiding the probate process.  Probate is the legal process through which assets are transferred and distributed.  If you picture it like a company, then the Trustee is the CEO who runs it.  A Revocable (also called a Living Trust) is the most common type of Trust.  Once established, assets are often transferred into the ownership of the Trust.  The rules defined in the Trust documents will dictate how it is run.  One caveat to using Trusts is that it is only able to govern assets placed inside it.  Unfortunately, a lot of people create a Trust and then fail to transfer their assets to it and their wishes are not fully carried out.

Power of Attorney (POA) – The POA is the most commonly used estate planning tool.  It gives one person the power to act on another person’s behalf.  Because of the power that it grants, you need to choose this person wisely and keep it up to date if that relationship changes.  There are many types, but two of the most common are the General Durable Power of Attorney and the Health Care Power of Attorney.

General Durable POA – This form of POA is broad in scope and is often used so that someone else can manage your financial affairs if you are out of the country or become incapacitated.  In the case of incapacitation, the only alternative to a POA is to go through the courts and seek guardianship of the individual.  When in place, it’s suggested that the person granting the POA personally take copies to their physicians and financial institutions.  This process can remove some future hurdles for the one trying to act on your behalf.

Health Care POA – This form of POA grants another individual the ability to make healthcare decisions on your behalf in the case that you are not able to make them on your own.  While we often overlook the situation, once a child turns 18, a parent can no longer make those decisions for them without a Power of Attorney in place.  The increasing complexity of most family situations has made healthcare facilities even more hesitant to allow others to make decisions without proper documentation and sometimes spouses can’t even make decisions without a valid POA.

Beneficiary designations – Transfer on Death (TOD) and Payable on Death (POD) – Listing beneficiaries on accounts will override any desires stated in your will and place assets outside of the management of your estate plan.  When beneficiaries are named, the assets go directly to the designated person or entity listed as the beneficiary and avoid the probate process.  This can be a good tool when used properly, but like the rest of your estate plan, it needs to be kept up to date.

Business Interests – Some situations warrant the creation of separate businesses, such as limited liability companies (LLCs) and family limited partnerships (FLPs).  There are many uses for these tools, including limiting potential business risks, passing assets to children, and passing family business interests to the next generation when all your children may not want to be involved in that family business.

This list only begins to scratch the surface of the different types of estate planning tools that can be used for individuals and their families.  After reading through the above list, you can see why anyone over the age of 18 could likely benefit from some sort of estate planning.  That could be as simple as a Health Care POA for a kid going to college all the way up to complex business and Trust planning for more complex situations.

Conclusion

Part of caring for our loved ones involves taking the time to put our house in order so we don’t leave a mess for them to clean up.  In fact, one of the biggest reasons for estate planning is the preservation of relationships.  It puts a tremendous strain on a family when they’re forced to make tough decisions at an already emotional time.  We all have the opportunity to record our wishes and put a plan in place now so that our loved ones won’t have to wrestle with those issues at a future date.  As with so many other relationship issues, communication is a key element.  Once you’ve planned your estate, it’s usually a good idea to inform those closest to you of your plan and have the discussions personally so nobody is surprised, confused or angry once you’re no longer around to explain.

 

Brad Graber, CFP® has been working with clients on personal financial planning and investment issues since 1996.  He invests his time mentoring and educating individuals on ways to be better stewards of the resources God has entrusted to them.

  

***Disclaimer:  The estate planning information contained in this article is general in nature, is provided for informational purposes only, and should not be construed as legal advice.  I am not an attorney and cannot guarantee that such information is accurate, complete, or timely. Federal and state laws and regulations are complex and subject to change.  You should consult an attorney regarding your personal legal situation.

Brad is a specialist in personal financial planning issues including retirement planning, investment management and charitable giving optimization.

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  1. […] We discussed estate planning in this broadcast.  The following recording is from “Mornings with Kelli and Linda” on Moody Radio Indiana (97.9 FM). You can read the corresponding article here. […]

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