Values Based Planning

Estate Planning means different things to different people, but essentially it is putting your affairs in order to achieve your goals and wishes. For the affluent, this means (1) tax planning; and (2) ensuring that resources are put to their best use. For those of lesser means (like, most of us), concerns range from (1) will there be enough to finance my retirement; (2) how will we pay for long-term care; (3) will there be anything for quality of life needs; (4) how will my spouse make ends meet if I need long-term care; to (5) will there be anything left for our children? All of these concerns are legitimate, regardless of your situation in life. The common thread, though, is that values based (or principles based) planning will help you answer these questions and achieve your goals much more than just letting the chips fall where they may.

Ray Dalio, in his book Principles: Life and Work, said “Principles are fundamental truths that serve as the foundation for behavior that gets you what you want out of life. … Without principles we would be forced to react to all of the things life throws at us individually, as if we were experiencing each of them for the first time.”

Kyle J. Christensen, CFP, wrote in Principles-Based Planning: A Better Approach to Financial Planning, “True principles are not circumstantial. True principles stand the test of time, are applicable in any situation, and at any stage of life. By contrast, objectives may change, and are likely to change, based on circumstances or stage in life. For example, as a principle, I am always going to save some of the money I earn. However, what i am saving for may change. Savings is the principle, and what i am saving for is the objective.”

Here are a few principles you might want to consider:

Honesty: Demand honesty from yourself and demand it from others. Don’t allow your emotions to cloud your judgment regarding things that matter. Jeremiah 17:9 says the heart is deceitful. In this day of TV and radio advertising, social media, texts and “alternative facts,” it is easy to fall prey to falsehoods. Also, don’t be afraid to have honest conversations with your loevd ones about your plans. Others are much more likely to follow, or help you follow, your plans if they hear first hand from you what you want. When you communicate honestly, you can tell others the “why” behind the “what” you are doing. It will be more impactful if other understand your reasoning for making decisions.

Stewardship.

Whether you believe in the same God I worship, there is one truth everyone must eventually acknowledge — you can’t take your stuff with you when you die. My world view is that everything I own belongs to God and I am simply a steward. If you’re beliefs are different, you should still prepare your heirs or beneficiaries to properly use what you leave behind. If you own a business, prepare a succession plan to ensure the business survives after you’re gone. If you have other wealth, think about how it can change lies for the better or for the worse.

Ask yourself (a) What is the best (or worst) thing that can happen if I transfer wealth to ______? (b) How serious is it? (c) How likely is it to occur? Asking questions like this will help you ensure that your wealth is passed to the next good steward who follows you. 1 Peter 4:10.

Life is sacred.

Living beats the alternative. But what do we mean by “life” and what constitutes a quality life? Would you want to be left on a ventilator for years if you were in a coma? Also, whiel I am personally against abortion, is being anti-abortion the only pro-life position? Isn’t feeding the hungry pro-life? What about caring for the homeless? Aren’t you contributing to a quality life when you spend money on a child’s education? Whatever it is that you believe about life, the way we treat each other while we’re living is just as important as the act of giving birth and the passing of someone through death. Matthew 25: 42-44

Wisdom.

Give wisdom before you give wealth. Family wealth advisor, James Hughes, Jr., frequently reminds his readers of the old proverb, “ Shirtsleeves to shirtsleeves in three generations .” In Japan, the expression goes, “Rice paddies to rice paddies in three generations.” The Scottish say “The father buys, the son builds, the grandchild sells, and his son begs.” In China, “Wealth never survives three generations.” If you fail to pass wisdom before you pass wealth, then you are setting your family up for failure. Share your experience, your insight, your successes and your failures. Proverbs 1: 1-7

Protect the weak.

Some individuals require additional protection. Individuals with special needs, or individuals who lack financial maturity, may require additional planning to access public benefits or to keep others from taking advantage of the. In the past, some planners suggested disinheriting individuals who needed access to public benefits or who could not manage money. They suggested leaving funds to others who would then care for the weaker heir. Unfortunately, bad things can happen to anyone so disinheriting weaker individuals in that manner is dicey at best.

What if the “trusted” heir dies, gets sued, or spends the money. A better way to protect special needs or financially immature individuals is witha trust. Funds inside a trust are subject to the terms of the trust agreement and can only be used in accorance with that agreement. They are not subject to claims against a so-called trusted individual, so if that person does experience hard times, the person you are seeking to protect still has the protection you intended for him or her. Psalm 41:1.

Equal, but not the same.

Many people leave their wealth to their children in equal shares. There’s nothing wrong with that approach, but it fails to consider them as individuals. You should love your children equally, but there is no rule requiring you to treat them equally in your estate plan. Your children likely have different skills, goals, resources and talents. One might be a successful doctor or lawyer, and another might be a missionary. One might have special needs. Consider how your wealth will impact each of them and how the division of your wealth best serves your goals.

Warren Buffet is credited with saying “The perfect amount to leave to your kids is ″enough money so that they would feel they could do anything, but not so much that they could do nothing.” Consider the right amount for each child to set them on the right course for the rest of their lives while remembering that the “right course” isn’t always measured with money.

Unity.

Many families fall apart after the death of both parents. They go their seperate ways and seldom gather or even communicate. Look for ways to tie your family together with bonds that are not easily broken. Don’t limit family gatherings to Thanksgiving and Christmas. Look for ways to make sure that each of your children has a lasting relationship with his or her siblings. One way to encourage unity is to be present in the moment when you get together. Turn off the TV and set aside the cell phones. Talk to each other. You might find out that you really like each other.

Encourage, but don’t manipulate.

There is nothing wrong with encouraging positive behavior in your children adn grandchildren. Manipulation, however, is another story altogether, and is often a recipe for disaster. As soon as the carrot disappears, a manipulated person will go back to the behavior you were hoping they would abandon. Sometimes you must take a chance and allow a loved one to fail so they learn how life works. Luke 15: 11-32

Decide.

Indecision is a decision. When you fail to make decisions, others will make them for you. Also, when you have a plan, you can work the plan instead of being driven by chance. As they say, failing to plan is planning to fail. Use your values to develop a process for getting from where you are to where you want to be. If you need more information to decide, then get that information either by doing your own research or by consulting an expert.

Legacy.

Decide what you want to leave as a legacy. Is it money, or does legacy mean something more to you? Would a good legacy be knowing your children share your spirtual values? Psalms 24: 4-5. Would it be supporting a charitable cause? Once you know how much is “enough,” perhaps stewardship means enabling others, or blessing others, either during your lifetime or at your death. Of course, if you bless others during your lifetime, you have the joy of seeing what you’ve done. Mark 9:41

Avoid Fear.

The often-used quote, “Never take counsel of your fears” having been attributed to two great military leaders of the past, Andrew Jackson, the seventh President of the United States, and Gen. George S. Patton, Commander of the Third Army in Europe during World War II. It is also attributed to Stonewall Jackson. Regardless, it is worth remembering that Joshua was told repeatedly to fear not, but to be be strong and very courageous. This does not mean you should abandon common sense, but it does mean that fear is a poor counselor. Joshua 10:8.

Generosity.

Generosity means sharing what you have with others. It does not require that you give away what is necessary to provide for your family, but it does mean remembering that it’s not always about you. Providers says “There is one who scatters, yet increases more; And there is one who withholds more than is right, But it leads to poverty. The generous soul will be made rich, And he who waters will also be watered himself. The people will curse him who withholds grain, But blessing will be on the head of him who sells it. He who earnestly seeks good finds favor, But trouble will come to him who seeks evil. He who trusts in his riches will fall, But the righteous will flourish like foliage.” Proverbs 11: 24-28.

Take care of yourself. Staying healthy is the best way to give yourself the opportunity to enjoy today and all of the days to come. Don’t try to undertake tasks that are destined to fail. If you are caregiving for someone, ask for help. No one can work 24/7 without relief. If you let your own cup become empty, how will you bless anyone else? If you have needs of your own, spend the money you need to spend today to take care of yourself today. Being penny wise and pound foolish in meeting your own needs is a recipe for disaster. If you don’t want to go to a nursing home, then take care of yourself. Listen to your doctor. Eat right, Take your medicine as prescribed. Exercise consistent with your doctor’s advice.

Faith (or Optimism). Regardless of whether you have spiritual beliefs, the way you approach life will impact your decision-making process and your relationships with others. You can be a glass-half full person or a glass-half empty person. Regardless, worrying about things you can’t change is self-defeating. Matthew 6: 25-34.Use the information you have today to make the best decision you can make today. If circumstances change, then update your plan. But waste your life worrying.

If you have other goals or principles you would like to share that have helped you, we invite you to share them with us. You can reach us at david@mcguffey.net. If you would like to read further on principle based planning, we suggest that you begin with Ron Blue’s Splitting Heirs: Giving Your Money and Things to Your Children Without Ruining Their Lives. You can also find resources at Wise Counsel Research.

Now, applying your values, whatever they are, let’s consider next steps.

First, let’s look at some of the common issues that arise with advanced age:

First and foremost is your health. All of us are traveling down, what we call the long-term care continuum. At our healthiest, we are independent and living at home. At some point, as our health declines, we may need assistance in our home. If our health continues to decline, we may need to relocate to a facility that can meet our needs, such as an assisted living facility or a nursing home. There are a number of things we can do to prepare for these facts of life. First among them is to select surrogate decision-makers who understand your values and who will honor them. You can do that using a power of attorney and a health care advance directive.

Next, let’s look at some of the ways you can transfer assets to your heirs:

Outright Distribution:

An outright distribution is just that: after mom and dad both die, their children receive their inheritance outright, in one lump sum. Simple, clean, and dangerous. On average, an inheritance will be gone within a few months after receiving it. And it doesn’t matter how old the child or how much the inheritance. If a child gets divorced or goes bankrupt, the inheritance could be lost without the child ever benefitting from it.

Step-Distribution:

With this arrangement, the inheritance is distributed to a trust, with built-in speed bumps – to help slow the speed at which the trust funds are depleted. One third of the principle might be payable to your child at age 30, one half at 40 and the remainder at 55. Usually this is appropriate when moderate to substantial wealth is inherited because it gives the child time to mature financially (e.g., even if they blow the first distribution, more is on the way later). Unfortunately, there is no guarantee your child will become financially mature and this is still simply a distribution. Once the resource is in your child’s hands, there is little asset protection (really, none). Once the money is gone, it’s out of your bloodline forever.

Lifetime Trust:

You could establish a trust that would take care of your child during his or her lifetime. With this type of trust, the child’s inheritance is distributed consistent with guidelines and incentives you write into the trust  – like rules of the road. The message? Adhere to the guidelines and philosophies of the trust and assets will flow; get into trouble and the trustee can stop the flow. The trust holds and manages the child’s inheritance for the life of the child, or until all trust funds have been distributed. An independent trustee is usually chosen to manage the trust and many times the child can serve as co-trustee. (When the child dies, any remaining assets in the trust can pass to the child’s heirs or other individuals or entities.)

The lifetime trust provides the most flexible vehicle for values-based legacy planning – with incentives, guidance and protections for your children. It also provides valuable asset protection – in case your children encounter difficulties during their lives, such as drug abuse, lawsuits, bankruptcy or divorce.

To better understand how a lifetime trust works, read elsewhere on this site about Trusts.