Wills and Trusts – Estate Planning Tools with a Purpose

A core principle of familial Biblical stewardship is, “to provide for those of his own house.” 1 Tim. 5:8 KJV 

Many Christians, having practiced the principles of giving tithes and offerings, are blessed to have assets for distribution to family members and charities at the end of their lives.

The transfer of assets to the next generation should achieve the overarching purpose of maximizing the overall benefit to those persons and charitable entities receiving the assets by minimizing the estate’s shrinkage due to court costs, legal fees and taxes.

The most common estate planning tools to minimize estate shrinkage are a.) a Last Will & Testament (“Will”), which provides for the distribution of personal assets (“Probate Estate”) upon the Testator’s death; and b.) a Revocable Living Trust (“RLT”) which provides for the management of assets (“Trust Estate”) during one’s lifetime and the distribution of these assets upon the Grantor’s death.

Additionally, these tools are routinely used to assure distribution of assets in conformity with the decedent’s stated desires and to minimize the stress and sense of loss experienced by the decedent’s loved ones.

Creation of Wills:

The general requirements to form a valid attested Will are as follows:

A. Must be drafted pursuant to the state laws of the Testator’s primary residence;

B. the Testator must be of sound mind, requiring testamentary capacity and not subject to undue influence, duress, fraud and insane delusion;

C. Testamentary capacity requires the Testator to: a.) understand and retain, without prompting, the extent and condition of the Testator’s property; b.) comprehend the “natural objects of the Testator’s bounty”; and c.) comprehend to whom the property is being devised;

D. the Will must be signed by the Testator in the presence of two disinterested, adult witnesses while declaring verbally or by actions the document is his or her Last Will & Testament; and

E. Additionally, a Proof of Will, signed by attesting witnesses and acknowledged by a Notary Public, may be used to prove the authenticity of the Testator’s signing of the Will.

Some states do permit a Testator to sign a Holograhic Will, one written entirely in their own handwriting.

Creation of Trusts:

The creation and execution requirements for a valid trust are similar to those required for a Will.

Types of Trusts: There are three primary types of trusts: 

A. Testamentary Trust: A testamentary trust is created by and incorporated within a Testator’s Will. Upon the death of the Testator, the Testamentary Trust is then funded with the Probate Estate assets. The Trust assets are managed by the Trustee designated by the Testator. These assets, designated as “principal,” generate “income.” The principal and income are distributed to named persons in amounts and over time periods as set forth in the Trust.

B. Irrevocable Trust: An irrevocable trust is created and funded during the Grantor’s lifetime. Any assets transferred to the Trust cannot be transferred back to the Grantor. The Grantor, if not serving as the Trustee, may receive income and earnings from the Trust.  The assets transferred into this Trust are not considered part of the Grantor’s Probate Estate upon his death. The Grantor may not amend or terminate the Trust without the consent and approval of all named beneficiaries. Irrevocable Trusts are also used to potentially qualify a person to receive government funding for nursing home costs. This strategy is fraught with complexity and competent legal advice is required.

C. Revocable Living Trusts: A RLT is a legal arrangement in which legal title to assets are transferred to a separate legal entity for the exclusive benefit of beneficiaries named in the RLT. Generally, upon initial formation, the person establishing the RLT, i.e., the Grantor, is also the Trustee and the primary beneficiary. The Grantor a.) as the primary beneficiary continues to receive all income and earnings, b.) as Trustee retains exclusive management and c.) as Grantor retains the right to amend or terminate the RLT at any time. In the event the RLT is created by joint Grantors, upon the death of the first Grantor, the Trust document becomes irrevocable as the assets are transferred into the RLT by the deceased Grantor. For tax reporting purposes, an Employer Identification Number must also be procured upon the death of the first Grantor. Assets held by a RLT are not subject to Probate Estate administration.

“To every thing there is a season, and a time to every purpose under the heaven; A time...to die; a time...to break down; a time...to cast away stones.” Ecclesiastes 3:1-5 KJV
For many of you, it is the season...it is the time to fulfill your Biblical stewardship calling.  Keep in mind there are free Estate Planning & Design Services through the United Pentecostal Foundation website.