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ESTATE LIQUIDITY –

Why It’s Important and How to Plan for It

Copyright 2013.Purcell and Amen - Attorneys at Law, Your Estate Matters LLC

www.yourestatemattes.com

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Estate liquidity can be achieved in a virtually endless number of ways. The type of assets you own as well as a number of other individual factors will determine which strategies and tools will work best in your estate plan Estate planning often involves merging several goals and objectives into one plan that has an overall goal of protecting loved ones. The primary goal of your estate plan may be to create a legal roadmap for the distribution of your estate assets when you die; however, you likely have additional goals that you wish to wrap into your estate plan as well. One of those goals should be to ensure that your estate has enough liquidity in the event of your death or incapacity. Unfortunately, many people overlook this objective when they create their estate plan, causing their loved ones to suffer financially during a time that is already filled with grief and heightened emotions. By understanding both the need for estate liquidity and some of the strategies available to create liquidity you can ensure that your loved ones are not faced with unnecessary financial problems if something happens to you.

What Is Estate Liquidity? Most people understand the concept of liquidity as it applies to their everyday finances but some overlook its relevance to estate planning. Liquidity refers to the availability of the value of an asset. Cash, for example, is a liquid asset because you can readily access and spend it. Real property, on the other hand, is not a liquid asset because its value cannot be immediately accessed. To illustrate, imagine that you just found out your father was in a tragic accident halfway across the world and you must get to him as fast as possible. You have $500,000 worth of equity in your home and $10,000 in cash in the bank. Which asset is more valuable at the moment? Clearly, the $10,000 in cash is more valuable to you because it is a liquid asset and can be used immediately. The value of your home, on the other hand, drops to zero at the moment because it is not a liquid asset.

Copyright 2013.Purcell and Amen - Attorneys at Law, Your Estate Matters LLC

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Probate When you die, your estate will likely be required to pass through the legal process known as probate. Probate is used to value your estate assets, pay creditor claims, and ultimately transfer estate assets to beneficiaries or heirs of the estate. Everything you own, or that you have an ownership interest in, becomes part of your estate for purposes of the probate of your estate. Immediately after your death, all estate assets must be located and secured. Those assets will remain secured, and inaccessible, until the completion of the probate process in most cases. This often means that your intended beneficiaries cannot access the assets and, therefore, cannot benefit from them until months, even years, after your death. It is for this reason that estate liquidity should be included as an estate planning objective.

Strategies and Tools for Creating Liquidity Estate liquidity can be achieved in a virtually endless number of ways. The type of assets you own as well as a number of other individual factors will determine which strategies and tools will work best in your estate plan; however, the following are common strategies and tools for creating liquidity within your estate plan: Trusts -- trusts, once used only by wealthy families, have become an extremely popular and beneficial estate planning tool over the last century. A trust can accomplish a number of estate planning goals, including creating estate liquidity. The primary advantage to creating a trust is that certain types of trusts are not included in the probate process at all. Because the trust is not included in the probate of your estate, the assets held by the trust are also not tied up in probate. Therefore, trust assets can be distributed at any time after your death or incapacity provided the trust terms call for their distribution. Even better, you can appoint yourself as the trustee of a trust and appoint a spouse/adult child/parent as the successor trustee. In this case, upon your incapacity or death the successor trustee immediately takes over management of the trust assets. Joint Ownership -- titling assets jointly can be an effective tool when trying to provide liquidity but only if you choose the correct type of joint ownership. In Missouri, only

Copyright 2013.Purcell and Amen - Attorneys at Law, Your Estate Matters LLC

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property title as “joint tenants with rights of survivorship”, or JTWRS, will create the liquidity you are looking for in your estate plan. If your home, for example, is titled as JTWRS then the co-owner will automatically become the owner of the entire property when you die. Other types of joint ownership, however, will result in a situation where your ownership interest becomes part of your estate when you die, effectively tying up the value of your ownership in the property until probate concludes. POD and TOD Accounts -- another simple, yet effective, tool for creating estate liquidity is to change the designation of accounts to “Payable on Death” (POD) or “Transfer on Death” (TOD). Typically, the POD option is available for financial accounts or investment accounts while the TOD designation is used on securities. Both operate the same way. You request to change the account designation to POD or TOD and then name a beneficiary (or more than one). When you die, the beneficiary then automatically becomes the owner of the account, therefore providing immediate access to the funds held in the account. This does not create a joint ownership situation, meaning that the designated beneficiary does not have any ownership interest in the account while you are alive. In addition, the POD and TOD designation does not help in the event of your incapacity as the beneficiary must provide proof that the account owner is deceased to be able to access account funds. Life Insurance -- life insurance is yet another excellent tool for providing loved ones with immediate funds upon your death. Of course, life insurance will not help in the event of your incapacity; however, it does work well in the event of your death. Life insurance proceeds are not included in the probate of your estate which means the funds can be distributed immediately to the beneficiaries of the policy. Combining Strategies – Planning for Your Burial and Funeral -- if you are concerned enough to make a point of incorporating estate liquidity into your estate plan then you are likely also concerned about how your loved ones will handle your death from both a financial and an emotional perspective. Although people prefer not to think of it from a financial perspective, death can be expensive. Your loved ones will be responsible for handling your funeral and burial during a period of extreme grief. To make things easier for them you may wish to combine estate planning strategies and pre-plan as well as pre-fund your funeral and burial. For example, some people create a funeral trust and

Copyright 2013.Purcell and Amen - Attorneys at Law, Your Estate Matters LLC

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then purchase a life insurance policy that names the trust as the beneficiary. Upon your death, the life insurance proceeds would then pay out into the trust and the trust terms would dictate that the funds are to be used to pay for your funeral and burial. Your trust terms could even specify details about the service or you could pre-plan the service with a local mortuary and direct the trust to pay the mortuary. There are numerous options; however, the objective is to ensure that your loved ones are not saddled with the task of funding your funeral and burial without sufficient liquid assets to do so. Now that you have a better understanding of what estate liquidity is and why it should be included among your estate planning goals you can begin to work with your estate planning attorney to incorporate some estate liquidity strategies into your plan.

References LifeHealthPro, Why You Should Keep an Eye on Estate Liquidity Missouri Bar, Joint Tenancy Missouri Revised Statutes, Pay on Death Accounts Bankrate, Pros and Cons of Funeral Trusts

Copyright 2013.Purcell and Amen - Attorneys at Law, Your Estate Matters LLC

www.yourestatemattes.com

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Estate Planning and Elder Law Attorneys in St. Louis, MO St. Louis Estate Planning Attorneys: Planning for Your Future Today Missouri Estate Planning attorneys Purcell and Amen, Attorneys at Law – Your Estate Matters, LLC. are here to help you with legal issues regarding St. Louis Elder Law, Veterans Aid and Assistance, Probate, Wills, Trusts, Trust Administration, Powers of Attorney, Health Care Directives, GBLT, and all things required to establish a proper estate plan for the future of both you and your loved ones. Our law firm understands the varying dynamics of modern families and seeks to address these issues in the estate plan so your estate is distributed only to those who you request, instead of those who may be otherwise legally obliged to it. Estate planning can be a big project that requires consistent maintenance; however, our professional Estate Planning attorneys can organize all of the legal paperwork and logistics for you, while offering helpful legal advice along the way. Purcell and Amen, Attorneys at Law – Your Estate Matters, LLC. 10805 Sunset Office Dr., Suite #100 St. Louis, MO 63127 Phone: (314) 966-8077 www.YourEstateMattes.com

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Copyright 2013.Purcell and Amen - Attorneys at Law, Your Estate Matters LLC

www.yourestatemattes.com

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Estate Liquidity  

Learn more about the importance of estate liquidity in Missouri in this presentation.