We’re picking up where we left off last time – discussing the Six T’s of Wealth Transfer.  We’ve already talked about the Transfer, Treatment, and Timing Decisions, and now we’ll cover the remaining three T’s.  These build on each other, so if you haven’t read the first three, go back and do that first. 

T #4 – Title decision.

This step involves the actual transfer of title of your various assets.  The number one rule of stewardship applies especially here: no matter who the asset is titled to, the ultimate owner is God – we’re merely stewards.

Depending on what assets you are transferring in your wealth, it’s important to think long term.  If you’re transferring a business or a farm – what will happen if it becomes extremely valuable in 10, 20, or 30 years from now?  What happens if it becomes worthless?

To avoid sibling rivalry, it’s wise to figure out what is important to each heir, and using that information combined with the previous Timing decision, make the appropriate provisions.  It may surprise parents to find out what each child finds valuable.

T # 5 – Tools and Techniques decision.

After four previous steps that built upon each other, we now reach the decision commonly referred to as “estate planning.”  You can see that a lot of thought and context has needed to be built before arriving here.  Setting up trusts, wills, and other legal documents are only a handful of pieces in a much larger puzzle.

You’ve answered the “what, who, when, and why” questions, and this step involves the “how” question.  You want to keep your estate planning as simple as possible while still achieving your overall goals.  The tools and techniques aren’t the objectives themselves, they’re merely agents to accomplish your objectives.  Bringing in the right team of advisors at this stage is critically important – so be sure to find a good attorney, accountant, and financial planner who you trust and who share the same values as you do.

T #6 – Talk decision.

The sixth and final T is the talk decision – which is by no means a one time decision.  This is where you’ll want to communicate the specifics of your wealth transfer plan to your heirs, and it will probably take place more than once, especially if things in your scenario or the scenario of your heirs change.  The talking should allow a family to align their individual expectations with reality, and not be surprised when the actual transfer takes place.

Family conferences are a great opportunity to promote family harmony as well as to pass on the wisdom we mentioned in the Transfer decision.  You have a great opportunity to transfer the tangible wealth alongside the intangible wisdom that you’ve accumulated throughout the years.  These conferences also can serve as a good platform for you to evaluate the readiness of each family member to possibly receive the wealth at some point.

Looking back over the Six T’s of Wealth Transfer, you’ll notice that the actual tools used for the wealth transfer are preceded by four crucial steps.  Possibly the most common mistake that many families make is jumping first to the “how” before addressing the “why.”  It’s difficult to proceed to the next T without sufficiently satisfying the preceding T.  This holistic view of wealth transfer aligns with the holistic view of stewardship – we as stewards cannot make isolated decisions.

A common element of many financial plans includes wealth transferring.  This may also be called “estate planning,” but we believe that estate planning is only one part of the larger wealth transfer process.

The discussion about wealth transfer varies strongly among various families, but we believe there are six common decisions that need to be discussed throughout the process, which we call the Six T’s of Wealth Transfer.  We’ll discuss the first three T’s now and the last three T’s in another blog.

T #1 – Transfer decision.

This initial step is deciding whether to make the transfer or not, and then deciding who receives the wealth you currently are in charge of.  This wealth could be in the form of investments, a farm, a business, or any other asset of value.

A good principle to keep in mind here is what is commonly called the treasure principle: the fact that you can’t take your wealth with you, but you can send it ahead of you (Matthew 6:19-21).  You’ll also want to consider the unity principle, which is affirming that you and your spouse are in complete agreement over this decision.  Our spouses are meant to complete us, not compete with us.

Lastly, yet maybe most significantly, you’ll want to consider the wisdom principle of transferring wisdom to your heirs before transferring wealth.  Proverbs 20:21 tells us that “an inheritance gained hastily in the beginning will not be blessed in the end.”  Wisdom may lead to wealth, but rarely will wealth alone lead to wisdom.  Be sure the next steward is well prepared to handle what you are passing on.  Ask yourself “What is the best/worst thing that can happen if I transfer my wealth to ____?  How likely is this to occur?”

T #2 – Treatment decision.

After making the decision to make the transfer, you then will need to decide how much each heir will receive.  For some families, this may be difficult if an illiquid yet valuable asset is being transferred, such as a business or a property.  A good guiding principle is that since you love your children equally you should treat them uniquely.  Fairness may not always mean equality.

In most scenarios, you will most likely be the best person to judge the readiness of your children to receive an inheritance.  A lot will need to go into this decision, such as their independence, their character, and their own financial situation.  Will the same amount of money be a blessing to one child yet a debilitating crutch to another child?

T #3 – Timing decision.

Next you will need to begin discussing when to transfer the wealth.  The key governing principle within this decision is an acknowledgment that the timing of the transfer needs to maximize the use of the wealth by you, your heirs, and the charities your support.

Ron Blue says you should “Do your givin’ while you’re livin’ so you knowin’ where it’s goin’.”  Translated: you’re going to know best how you allocate and distribute your wealth, so the surest way to see that it will be used to your liking is to be around when it’s being distributed.  This isn’t to say you should squander your wealth in haste in your last years, but it does run contrary to a lot of beliefs.

Timing will also be significant especially when giving money to children – as you don’t want to use the money to manipulate behavior, change their lifestyle, or destroy the need to provide.  You’ll also need to take great caution in not being swayed by your children’s demands or expectations.

When considering charities, you’ll also want to ask yourself how confident you are that the values you cherish in your charity won’t change over time.  The answer to this question can help determine whether you do your giving now or after you pass on.

We’ve covered three T’s and still have three more to go – be sure to check back in soon for the remainder of the wealth transfer process.