An Incomplete Gift?

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An irrevocable trust is a technique used by estate planners to remove assets from a client’s estate for tax or asset protection purposes. The assets the client wants protected are placed in the trust. But there are downsides to an irrevocable trust. First of all, the client loses all control over the assets. Second, the client loses the right to any income generated by the assets. Third, the beneficiaries who receive the assets upon the death of the client (usually the children or grandchildren) inherit the “basis” of the client in the assets rather than the “step-up in basis” which they would have received if the assets had been inherited under a will or revocable living trust. This can result in a significant difference in the amount of capital gains tax payable by the beneficiaries upon the sale of the assets.

To overcome these challenges, a very clever estate planner many years ago came up with an irrevocable trust that was intentionally defective: the client would maintain the right to change the beneficiary in the irrevocable trust through a “power of appointment” in the client’s Last Will and Testament. Because of this, the Internal Revenue Service ruled that the gift of the assets into the irrevocable trust was an “incomplete gift,” thereby allowing the client to receive the income from the assets. It also treated the assets upon the death of the client as though they were part of the estate that passes to the beneficiaries via a will or revocable living trust with a “step-up in basis.” But the best part of the ruling was that the assets were not to be treated as part of the client’s estate for estate tax or asset protection purposes. This is a case where an incomplete gift gives people more than they would have had with a completed gift. (If you would like to learn more about this type of irrevocable trust, please email me at: stewardship@clba.org.)

While an incomplete gift in the estate planning arena can be a good thing, such is not the case in the spiritual realm. God’s gift of his Son for us was and is complete in every way. Unfortunately, many Christians believe and act as though God’s gift to us were incomplete. They think that God’s acceptance of us or his happiness with us as his children is somehow dependent upon how “good” we are or how busy we are with “spiritual” things. Believing that there is anything we must do to initiate our receiving his gift is believing that his gift is incomplete.

When God gives his gift of salvation through his Son Jesus, it is wholly dependent upon him and his love and grace toward us. John 1:12-13 says, “Yet to all who did receive him, to those who believed in his name, he gave the right to become children of God—children born not of natural descent, nor of human decision or a husband’s will, but born of God.” Live in the freedom of the Gospel! Enjoy living a life of good works for the benefit of your neighbors, knowing that God accepts you based solely upon the life and death of Jesus, not based upon how hard you work or how good you are. His great gift to us is complete in every way.

Roy Heggland serves the CLB as Associate for Biblical Stewardship.

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