Welcome to this third blog in our series on Estate Planning. If you haven’t read the first two, I would encourage you to start here.
Setting up a trust for each of your children involves a lot of planning, but in my opinion, it’s the best way to leave an inheritance that will be utilized at the right age and stage of life. The beauty is, you get to decide how the trusts are set up and in what ways the money can be utilized.
When Kathy and I pass, a certain amount of money will go into each of our children’s trusts. It’s a set amount that they have access to at different times. We also have a General Welfare Trust that I refer to as an emergency trust. This is governed by two different trustees, which means our children will never be trustees and will only have access as needs arise. When this general welfare trust ends, the remaining proceeds will be given to Servant’s Heart Foundation – and ultimately be used for God’s kingdom.
Here are some key steps to consider when preparing your trust:
Work with an Estate Attorney
The type of trust you choose can shape how your estate is managed and protected, so working with an attorney ensures you select the structure that best fits your family’s needs and values, and determines the right kind of trust (living, irrevocable, etc.)
Choose Trustees with Care
Over the years Kathy and I have learned that selecting the right trustees requires careful thought as the role requires more than just your relationship; it also requires them to take on full responsibility, manage potential challenges and succeed. We appointed two types of trustees: one was family and friends who know our family values, and the second, business professionals to manage the technical side.
We have also left clear instructions and documentation for them to follow; so clear that they can step into the role without having a single conversation with us. This is important.
However, we have never told any of our family or friends they were listed – and this was intentional. We did this because as we reviewed our trust over the years – our list has changed; and removing someone after telling them they were ‘in’ could easily hurt feelings – particularly if they found out after your passing. We realized early on this wasn’t the right way to go as relationships matter too much to risk that kind of misunderstanding.
Preventing Conflict over Personal Property
It’s unfortunate how easily tension can arise over sentimental items. To avoid this, Kathy and I went through our treasured items and thoughtfully decided where each one will go. We have thought of our children, grandchildren, family and close friends and written a letter listing each item and who it is intended for. We keep adding to it as needed and see it as a way of reducing potential disputes before they start.
Consider the grieving process as well and try not to overwhelm your kids with non-essential tasks. This is where having an estate attorney will be a big help. They will assist in transferring assets to your children and ensure your wishes are carried out.
Here is a list of instructions to leave behind:
- A detailed record of bank accounts, investments, and personal property
- Instructions on how to access your online accounts and social media profiles
- A list of your debts and liabilities, as well as instructions on how to address them
- Information about trusts, trustees, and how they should be administered
- Specific instructions about heirlooms, jewelry, and sentimental items
- A list of important contacts, including attorneys, financial advisors, and other professionals to assist with your estate
You’ll find an exhaustive list of important documents to organize in my blog titled How to Prepare Your Wife for Your Passing, that can also be used as a helpful checklist for your children. Please also read Things to Consider When Preparing for Your Parents’ Passing for further considerations. I recommend giving each of your grown children a copy and discussing the items listed.
Making sure your children have a clear understanding of your assets involves clear instructions from you. Try not to put this off for later but see it as an important step in leaving an inheritance that won’t become a burden.
Determining when your Children become Trustees
Another decision you have to make is – what age your kids can become their own trustees. For years, we set this to 40 years, believing that by then most people are fairly established. However, as we have watched our children grow into mature adults, we lowered it to 35 years. This happened a few years ago and it felt right for our family.
Sole and Separate versus Community Property
This is a complex but important choice. Will your children’s inheritance be left to them as sole and separate property, as community property, or will you let them decide? To help clarify: sole and separate property are assets owned by one spouse before marriage or are received individually as a gift or inheritance. Whilst community property is assets acquired by either spouse during marriage and generally considered equally owned by both.
In our case, we chose to make it sole and separate. We didn’t want to put our children in the tricky position of making that decision themselves and protect their spouses’ feelings. By making the choice, we take on any perceived heat and keep them out of the dynamic.
There really is no right or wrong answer here. Each approach has its own implications. The important thing is to consider it and do so with care.
Providing for those you Care About
Our estate not only factors in our children – but considers other key relationships including parents, grandchildren and siblings. These provisions reflect the relationships that matter deeply to us, and we wanted to honor them in a tangible way.
Considering Additional Provisions
There are some additional considerations that are important to Kathy and I and we included an allocation for them within our estate:
Graduate School Support: this is for any of our children who wish to pursue further education. To be a recipient they need to have worked for at least two years in a job related to their chosen field of study. The idea of this is to prevent one from becoming a ‘professional student.’
Homeownership Assistance: we have set aside an amount for each of our grandchildren to go towards downpayment for a home. We had the pleasure of doing this for our children and wanted to participate with our grandchildren and encourage homeownership.
Business Loans: Any of our kids can borrow from the trust to start or expand a business – with trustee approval. They must present a clear business plan, explain how the funds will be used and outline how they will mitigate risk.
Family Traditions: Kathy and I enjoy giving Christmas and birthday gifts. We therefore have included provisions over the next 25 years for both our kids and grandkids to receive gifts from us. We also host a lot of family dinners and want to encourage our kids and their families to get together often for meals – and we will cover the bill.
Mission Trips/Faith Adventures: we’ve always encouraged our kids to participate in these trips and have included provisions for that as well.
A Framework for Handling Difficult Situations
Not every scenario will work out smoothly – so bear in mind how trustees should navigate them. For example, if a child is struggling and cannot manage funds wisely, they should not take over their own trust and instead have distributions closely monitored.
Create a Notarized Document
Create a notarized document that outlines the terms and conditions of the trust. This will give weight to your wishes and ensure the terms are clear and legally binding, leaving no room for confusion later.
ACTION STEPS
Together with your spouse, begin to create your ideal trustee list. Consider individuals who have the judgement and integrity to carry out your wishes. Think about how they handle responsibility, relationships and decision making under pressure. Keep the list and make adjustments as life changes.
Put together a document that leaves thorough well written instructions for your trustees. Include your values, priorities and specific directions, so they can confidently carry out the plan as intended.
As you draw up your plan, make decisions that reflect your values, protect relationships and prepare loved ones for their future.
