Chapter 7: Your Estate: Stewardship and the Next Generation

• Learn the secrets of planning your estate and retirement. 
• Build your estate on God's principles. 
• Leave your family adequate financial resources.

Key Scripture: ". . . man is destined to die once, and after that to face judgment" (Heb. 9:27).  

Estate Planning    

Estate planning is an integral part of financial planning and should be started as early as possible. Procrastination characterizes poor stewardship. Basically, estate planning begins with the acknowledgment that someday you will die. Your death will probably occur when you don’t expect it—and you cannot take anything with you. It is therefore of utmost importance that you spend time alone with God, seeking his guidance on how to allocate your resources.  

"Sons are a heritage from the Lord, children a reward from him" (Ps. 127:3). The most important reason for estate planning is to provide for the health, education, and welfare of your spouse and children in the event of premature death. During life God provides the finances necessary to establish an estate; civil law provides the legal means to conserve these resources for your surviving family members.  

Every year estates are reduced by millions of dollars because of administration and taxes. Much of this shrinkage could have been avoided. Therefore, it is your duty as a good steward to look diligently for deductions or exemptions. Many taxes and fees can either be reduced or completely avoided. Obviously, evading taxes is illegal, but avoiding taxes is perfectly legitimate. Estate planning is essentially redirecting money from the government and lawyers back into your estate. The U.S. Supreme Court has declared it legal to arrange your affairs to reduce taxes to their lowest possible level.  

Having a will is an exercise in good stewardship. Yet of all the people who die in the United States, approximately 70 percent leave no will. As a result, those without a will leave the following important decisions to the state:  

• Who will be in charge of administering my estate?
• Who will be the guardian of my children?
• Who will receive my property when I die?  

Many people believe that if they don’t have a will, their spouse will automatically administer their estate. Usually, this is true. But if the spouse does not come forward within a certain amount of time, someone else, even a creditor, can be named administrator. Others leave it to the state to distribute their property after death according to inheritance laws. They do not realize that in all probability...   

• The state and/or the federal government will assess heavy estate taxes.  
• The state will not distribute any of the estate to the Lord’s work.  
• The state may not distribute the estate to the people they would want to receive it.  

Reasons for not having a will range from procrastination to indecision to superstition. Many people see a will as something that cannot be changed. But a will is amendable (i.e., you can change it at any time) and is completely revocable.  

Intentionally or unintentionally, a will reflects the values of the parents. The method of distribution of the inheritance can actually affect the lives of children, both spiritually and materially, either positively or negatively, for years to come. Therefore, an important decision for anyone writing a will is not only who will receive the estate but how it will be received.  

Three Types of Wills    

• "I Love You" or "Simple" Will. The first spouse to die leaves everything to the surviving spouse.  
• "A-B Trust" Will. The objective is to keep a portion of the assets in the estate of the first spouse who dies, in order to utilize the "exemption equivalent" of both parties.  
• "Pour-over" Will. This very complicated will leaves everything to a Revocable Trust that has already been set up.  

Probate    

Probate is the legal process through which your bills are paid and property titles are passed to others at your death. The original system of probate was designed to protect the estate as it was passed on to the heirs. While each state has its own probate laws, these laws have certain common factors: (1) They assume that someone is going to take advantage of an estate; (2) Their procedures are complex, lengthy, and expensive; (3) When a person dies without a will (intestate), probate cannot be avoided; and (4) The state distributes the property according to its own design.  

Christians should try to avoid probate because it is:  

• Time consuming. On the average, the probate process takes one to three years.  
• Expensive. The national average for probate proceedings is 5 to 10 percent of the property value with most of the money spent for lawyer’s fees.  
• A public procedure. Most people prefer that the details of their private lives not be made available to the general public.  

Revocable Living Trust    

To avoid probate, the revocable living trust is one of the most popular estate planning techniques. A trust is a legal document much like a will in that it distributes your property after death. But, unlike a will, the trust legally avoids the probate process. Since the probate courts do not have jurisdiction over trusts, and because the property held in a trust is not titled in your name, the revocable living trust does not have to go through probate.  

There are several reasons why modern estate planners prefer to use a revocable living trust rather than a will:  

• It conserves the estate for the family as well as any possible gifts for the ministry. Many Christian families donate the savings (5 to 10 percent of the estate) to their church or other Christian organization.  
• The revocable living trust preserves the personal control of the estate during life. As circumstances change, the trust can be amended with no loss of control over the assets.  
• It saves the family time and great emotional stress. A living trust is less susceptible to contest by dissatisfied heirs, since it does not require court proceedings for settlement.  
• Both the trust and the distribution under the trust are private, since the estate does not pass through probate.
• A living trust provides more flexibility than a will. When a person with a will moves to another state, the will becomes subject to and governed by the laws of the new state of residence.  
• The trust provides for an uninterrupted flow of income for the family upon the death of the trustor. It also provides for business continuity.  

Estate Liquidity  

An important part of any estate planning is to provide for liquidity of some of its assets. During the transition period immediately following one’s death, liquidity provides flexibility by (1) preventing the sale of nonliquid assets, such as the family home, prematurely; (2) paying appropriate taxes; (3) facilitating distribution among several beneficiaries; and (4) allowing a closely held business to continue functioning. Both family and spiritual obligations can be accomplished through an effective estate plan.

Life Application:

Q: What does "revocable," in a revocable living trust, mean?
A: Revocable means that the trust can be revoked or amended anytime during your lifetime. This allows for flexibility in managing your trust assets.

Q: Who is trustor (donor, settlor, grantor)?
A: These are legal names given to the person who sets up a trust. Such a sperson is referred to in the trust documents by one of these names.

Q: Who is a trustee?
A: The person or organization managing the assets of a trust is given the legal name of a trustee.

Q: May the trustor also function as the trustee?
A:Most state laws allow the trustor to also be the trustee. A successor trustee should also be named to manage the trust in the event the trustee in unable to manage the trust.

Q:If my assets are not in my own name, but retitled to the name of the trust, do I retain full control?
A: Yes. Serving as the trustee of your own trust or in the case of a husband and wife, as co-trustees if you so choose, you have complete management control of all your assets in the trust. You may freely add to or remove assets from the trust, and you can sell or exchange trust assets at any time. 

Q: Is joint tenancy a substitute for a will?
A: No. In some instances it may be useful in addition to a will, but in the event of a common disaster, joint tenancy does not make any provision for asset distribution or guardianship. The laws of the state would prevail.

Q: Do I need an attorney to draw up my will?
A: Yes. It is advisable to engage competent legal counsel for drafting your will in order to include all provisions of your federal and state laws for your benefit.

Key Scripture: "Be very careful, then, how you live—not as unwise but as wise, making the most of every opportunity, because the days are evil" (Eph. 5:15-16).  

Capital Growth Trust   If you feel that your children need to learn to manage money before receiving their inheritance, the Capital Growth Trust is an excellent estate planning technique. It conveys an inheritance to your children while giving them time to mature financially. An additional blessing is that it almost doubles the amount of the estate. As you compare a conventional plan (a simple will) with a maximized plan using the Capital Growth Trust, you will note an amazing difference.  

Review Chart 7-A, "Married—$300,000 Estate," at the end of this chapter. Even though $300,000 may seem like a large amount, this sum represents a moderate size estate. When you consider the total value of your home, insurance policies, and other assets, you will find your own estate to be quite substantial. But regardless of the size of your estate, the same principles apply.  

Under the maximized Capital Growth Trust plan, the heirs receive $393,000—an incredible increase of $122,250 over the conventional plan. In addition, a total of $161,000 is designated for charitable gifts. The maximized plan has increased the estate by almost 85 percent. It is evident that the Capital Growth Trust is a tremendous technique for avoiding the dissipation of an estate within a short period of time.  

Review Chart 7-B, "Single—$300,000 Estate," at the end of the chapter. This chart shows the way a single parent’s estate would be managed under both the conventional plan and the maximized plan.  

The Credit Shelter Trust   Many people spend a great deal of time trying to reduce their income tax liability. Income tax rates run anywhere from 15 to 31 percent, but estate tax rates are an astronomical 37 to 55 percent. Although the planning for a $600,000 estate may not seem applicable to your situation at this time, more and more people are reaching these estate values—perhaps through business successes or through an inheritance. Through sophisticated planning, people with an estate value of between $600,000 and $1.2 million will be able to preserve the assets God has entrusted to them and not pay any estate tax.  

The Credit Shelter Trust offers two benefits:  

• No taxes are paid on the estate of the second spouse to die.
• The estate goes tax-free to the children.  

Review Chart 7-C, "Married—$1,200,000 Estate." The $1.2 million dol- lar figure is used because it is the total of the husband and wife’s individual $600,000 exemptions. Now compare the use of a simple will with a maximized plan using the Credit Shelter Trust.  

The Charitable Remainder Unitrust  

The Charitable Remainder Unitrust technique is only for those who have property that has appreciated in value. It is a way to avoid completely the capital gains taxes, jokingly referred to as a form of government profit sharing. If you risk your money and make a profit, then the government assesses a 28 percent tax. For example, if you sold a piece of property, you would be taxed at the rate of 28 percent on the total amount of appreciation. A Charitable Remainder Unitrust offers a number of benefits:  

Instead of selling the property and paying the tax, you could transfer the property to a Charitable Remainder Unitrust and let the trust sell the property. The trust pays its remainder interest to charity, thereby giving you a charitable deduction in the year that you transfer it.  

You are exempted from the capital gains tax because of the charitable contribution.  

The original amount put into trust will stay there for a number of years, paying both you and your spouse an income for both of your lifetimes.   The trust will also act as a hedge against inflation because each year the excess accrued is added to the trust.  

The original amount will be removed from the probate estate and is removed from the estate for federal estate tax purposes.  

Eventually, you will benefit a worthy cause. After two lifetimes (or some other period of time you select), the trust principal (which has increased) is paid to the charity or charities of your choice.

The uses of a Charitable Remainder Unitrust are really only limited by the needs and desires of a couple and the expertise of their attorney. By changing certain terms, like the amount of payout and the number of years, the trust can be used as a retirement vehicle, or as a means to provide money for the children’s education. See Chart 7-D, "Charitable Remainder Unitrust," at the end of this chapter.  

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