Of all the issues that affluent parents confront in planning, none consumes more time and emotional energy than that of inheritances—and for good reason. There is no area of the planning that could be more devastating to a family than an ill-thought out or ill-timed inheritance. Over the past several decades, I have had the opportunity to review hundreds of estate plans. In all those years, I have yet to see a current inheritance plan that parents were entirely happy with when their outcomes were explained to them.
In one case, the parents said they only wanted their children to get a lifetime income stream because they were opposed to giving lump sum inheritances. Their attorney drafted the documents so the children would receive an income stream for life. Since no directive was discussed for what to do with these income-producing trusts after the children died, the attorney designed the trusts so the grandchildren (some of whom were not even born yet) would get an outright distribution of the trust assets when the children died. The grandchildren were going to become lump sum multimillionaires. The parents were mortified when they actually saw their current plan mapped out.
With a couple of other families, when the parents saw exactly what their children were going to inherit, they were so shocked and concerned they immediately called their attorney and changed their wills before leaving on extended vacations.
When another couple saw the excessive amount that their current plan was going to provide for their children, the father jumped up from his chair, ran to the screen where the presentation was being projected, pointed to the box on the flowchart showing the amount going to the children and cried out, “Look at what they are going to get! I cannot believe it. Look at that! We’ve got to do something about that.”
How does this kind of thing happen? I would suggest that all of these families had very good legal and accounting professionals who attempted to serve them well. However, if clear directives from the parents are not provided, legal documents typically end up with standard, boilerplate, inheritance language that is anything but carefully and strategically thought out for the family’s unique situation.
Here are just a few of the many complex issues that make inheritance planning such a challenging conundrum for families.
Conundrum #1
All our children are not the same in their readiness to handle a sizeable inheritance. However, we feel obligated to treat them all the same because we love them all the same and do not want to be perceived as showing favoritism.
Conundrum #2
Some of our children are involved in our family business and others are not, yet the vast majority of our wealth is tied up in the company. How do we treat them all fairly when not all of them will get the business?
Conundrum #3
We would like to leave our grandchildren an inheritance, but we do not want to override the influence of their parents by giving an inheritance directly to the grandchildren.
Conundrum #4
We have one child that is not living a lifestyle of which we approve. We do not know how to address these inheritance issues with our “black sheep,” and it also significantly affects how we are able to plan for our “good” children.
Conundrum #5
Our children are all extremely different and do not get along that well. If we simply divide all our property up equally among them, family conflict will be inevitable.
As you can see these are exceptionally complex issues and there are no quick fixes or boilerplate solutions to these conundrums. It will take a lot of time, a lot of prayer, and a lot of conversations to create a strategic inheritance plan that will actually bless, and not create unseen problems for your heirs.
As I was visiting with a very wealthy Christian couple a number of years ago, I asked them the question, “How much is enough for your children?” The husband responded quite quickly and said, “I want each of our five children to get $10 million dollars.” However, this total inheritance was only a small portion of his total wealth.
I asked him how he arrived at this amount. He reached his hand to the sky and grabbed a handful of air, pulled it down, opened his hand before me and said, “I kind of came up with it out of thin air. It just seemed like a nice round number.”
I said, “Well, let’s think about that amount for a minute. If they each got $10 million and put it in a relatively conservative investment yielding five percent a year that would give them an annual income of about $500,000 or about $10,000 a week. This amount of income should enable them to sit on their couch and watch TV everyday for the rest of their lives never doing anything productive or meaningful.” The wife gasped and said, “Honey, I’m not sure that is the right amount.”
I asked him, “Do you want to fund opportunity or lifestyle for your children?” He answered, “Opportunity.” Then I said, “There is a huge difference between funding opportunity and funding lifestyle. Exactly what do you want your inheritance to do for your children?” This one question led to two more hours of inheritance discussion.
Most families spend far more time preparing the legal documents for their children’s inheritance than they do actually preparing their children for their inheritance. If you want a successful inheritance plan, what you do around the kitchen table with your family is far more important than what you do around the conference table at your attorney’s office.
Ecclesiastes 7:11-12a says, “Wisdom along with an inheritance is good and an advantage to those who see the sun. For wisdom is protection just as money is protection.” What are you doing to give your heirs the wisdom they need to handle the wealth you intend to give them?
I have adapted the Maturity Marker work done by Mitchell Baris, Carla Garrity, and Carol and John Warnick into four biblically based Maturity Markers to help parents more objectively assess the preparedness of their heirs to successfully handle their desired inheritances.
Unfortunately, parents typically address their inheritance dilemmas by executing legal documents that attempt to protect their ill-prepared heirs from harming themselves with their coming inheritance. With the use of these four Maturity Markers, however, parents are able to address and work to correct the problem areas in their heir’s lives.
A primary inheritance objective in our working with families is to “stop the bleeding” and heal the “wound,” not simply put a “legal bandage” on a currently infected character defect hoping that somehow the “patient” will at least not get any worse in the future.
Spiritual Maturity Marker #1
(An Heir’s Relationship with God)
Signs for this Spiritual Maturity Marker would include an heir who is…
(1.) growing as a personal follower of Jesus;
(2.) developing in godly character; and
(3.) ministering to others.
Emotional Maturity Marker #2
(An Heir’s Relationship with Himself)
Signs for this Emotional Maturity Marker would include an heir who is…
(1.) taking responsibility for his/her actions and proactively seeking to correct his/her mistakes and sins;
(2.) controlling his/her anger, frustration, disappointment, and stress appropriately; and
(3.) avoiding chronic problematic and self-destructive behavior.
Relational Maturity Marker #3
(An Heir’s Relationship with Others)
Signs for this Relational Maturity Marker would include an heir who is…
(1.) developing and maintaining healthy and meaningful long-term relationships with friends and family;
(2.) treating other people with respect and dignity; and
(3.) making personal sacrifices for the benefit of others.
Financial Maturity Marker #4
(An Heir’s Relationship with Money)
Signs for this Financial Maturity Marker would include an heir who is…
(1.) living financially independent of parents;
(2.) exercising consumptive self-control in spending; and
(3.) engaging in enthusiastic and generous giving.
These maturity markers should better equip you to have real, meaningful dialog with your children enabling you to establish measurable and attainable standards by which to make more objective inheritance decisions instead of having those decisions driven primarily by emotion and guilt. As you can see, coming up with a thoughtful, loving, and effective inheritance plan for your family is neither simple nor easy; but, without a doubt, it will be time very well spent for you and for your family.
Download PDF: Inheritances – Oh What to Do
© 2010 Stewardship Ministries | All Rights Reserved.
E. G. “Jay” Link, is the President of Stewardship Ministries, a teaching, training and mentoring ministry for professional advisors and ministry leaders to equip them to effectively serve believers who have accumulated surplus, material possessions. He is the author of three books, “Spiritual Thoughts on Material Things: Thirty Days of Food for Thought,” “To Whom Much is Given: Navigating the Ten Life Dilemmas Affluent Christians Face” and “Family Wealth Counseling: Getting to the Heart of the Matter.” Mr. Link may be reached via email at jlink@StewardshipMinistries.org.
