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September 2024As He commissioned His twelve disciples for their first missionary journey in Mark chapter 10, Jesus gave many instructions to them about how to interact with a hostile world. Those instructions were summarized in verse 16, when Jesus instructed His new missionaries, “Behold, I am sending you out as sheep in the midst of wolves, so be wise as serpents and innocent as doves.”
Christians today are also on a mission to spread the Gospel to a hostile world and would be wise to heed the words of the Author and Perfector of the faith as we do it. Finding the balance of wisdom (a/k/a shrewdness) and innocence is easy in many areas of life, but much more complicated in areas where issues of morality, government and family overlap in hard-to-understand ways.
One of those complex areas is the area of planning for the distribution of our estates in the event of our passing into glory. In an effort to equip Christians to be wise and innocent, what follows are the top three mistakes made by well-meaning Christians as they attempt to steward their resources into future generations.
1). Having Designated Beneficiaries That Do Not Match Their Wishes
Many believers have spent many hours and dollars on well-thought-out and complex estate plans like trusts and other transfer documents and leave this earth resting in the comfort that those plans will handle the transfer of all of their assets at the time of their death.
What often really happens, however, is that it is discovered after death that beneficiary designations on life insurance, retirement accounts, bank accounts and even real estate trump most estate planning devices, whether that was the deceased owner’s intention or not.
In one situation, a person prepares wonderful and Biblical estate planning documents, but never gets around to taking off previously designated beneficiaries on accounts or properties. Regardless of the person’s beliefs, those beneficiaries still control the distribution of the accounts or properties even after the establishment of a trust or other estate plan, unless those beneficiary designations are changed at the time of the plan.
In the other situation, a person prepares wonderful and Biblical estate planning documents and dutifully makes all of the beneficiary updates as directed by the assisting estate planning attorney. Years later, however, relatives convince the person that it would be “easier” for them to name those relatives as the beneficiary of accounts or property instead of utilizing the trust. It is truly easier, for the relative who advised the change, as they walk away with all of the assets, regardless of what any other documents might say.
To avoid this mistake, update beneficiaries every time you update your estate plan, and check beneficiaries every 5-7 years, when you check your estate plan with your estate planning attorney.
2). Leaving Unbelievers In Charge of Their Affairs
The lack of wise younger family members to administer estates and trusts has reached epidemic levels among aging Christians. In light of this lack of available wise stewards, many have decided that the next best option is to ask nonbeliever family members to step in. As you might imagine, this choice has led to disastrous consequences in many situations. Funds that could have been blessings to younger or less able beneficiaries have become sources of control, abuse or division. Assets that could have been longstanding testimonies to the legacy of departed believers have been wasted on organizations and pursuits that would have never been acceptable to the deceased grantor.
What is the solution? There are two.
The first, lesser solution is to draft documents that precisely and Biblically dictate every move a future trustee will make. These documents are extremely time consuming and expensive to draft, however, and remove all of the flexibility and insight that might be gained from having a trusted person in the moment to exercise discretion consistent with the original owner’s intentions.
The better solution is to find someone outside of the family who shares your Christian worldview and pay and empower them to manage the estate or trust consistent with your beliefs. Many believers find paying a non-family member difficult to swallow when family members will do it “for free.” The saying is true, however, that there is no such thing as a free lunch, and the true cost of having an unbeliever handle God’s money is too often much higher, and much more painful, than the grantor of the authority could have imagined.
When making your estate plan, think very carefully about the values of the individual you are picking to handle things, as this is your only chance to evaluate their work.
3). Giving the Wrong Assets to Charities and Paying Unnecessary Taxes
The final common mistake made by generous Christians in their estate plans goes as follows:
“I have a $50,000 bank account that I want to leave to my church, so I made them the beneficiary of the account. I have a $50,000 retirement plan that I want to leave to my kids, so I made them the beneficiary of that account.”
At the time of death, the church gets a check from the bank for $50,000 with no tax due because the account is not taxable at death. The children, however, get a total of $40,000 from the retirement plan because they have to pay income taxes on the funds they receive.
The problem with this plan is that the church is a tax-exempt organization, so it would not have to pay taxes on the retirement account. So making the church the beneficiary of the taxable retirement account keeps them at $50,000, while making the kids the beneficiaries of the bank account increases their share by $10,000. The family, who aren’t allowed to run deficits every year, end up with more money by simply designating the right account to the right beneficiaries.
Taxes are an important and confusing issue. Always work with professionals who can make sure you pay as little as possible within the bounds of the law.
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