Broker Check


February 04, 2020
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During client review meetings, we’ve noticed that a number of our clients are ending up with a slight gap in their estate plan. There are a few ways to manage your final expenses when you pass away. However, most of the people we talk with have not thought this through and believe they have filled this need.

Let’s go through an example of a typical conversation that I have with clients. Let’s call them Mike and Tracy. They are in their early sixties and during an annual review meeting I asked them how they have planned for their beneficiaries to manage their final expenses.

Carol: Mike and Tracy, what plans have you made for Michael Jr. and Patrick (their sons and beneficiaries) to manage your final expenses when you pass away?

Mike: We have life insurance for that. Both Tracy and I have a permanent life insurance policy for $100,000, which is more than enough to pay our final expenses.

Carol: Life insurance is an amazing wealth transfer tool, but it isn’t typically available for 30 or more days due to the requirement of a death certificate and the claims process.

Tracy: What about our money at the bank?  We set it up with a transfer on death (TOD).

Carol: TOD is a great way to avoid probate, but your bank accounts will freeze when you die and require a death certificate to get access.

Mike: What about our investments and annuities?

Carol:  Both require a death certificate to start the claims process. The national average is currently 10 days to get a certified copy of the death certificate, assuming there is not an autopsy or unknown cause of death.

Client:  Michael Jr. is our Power of Attorney (POA) and can sign documents for us. Does that work?

Carol:  POA is great to have in place, but this unfortunately dies with you and will not work after you pass away.

You are like most of my clients. You have not purposely neglected to plan, but you were just not educated on the details of how to help your beneficiaries manage your final expenses when you pass away.

First, you mentioned life insurance and that you have done a great job of building your wealth. Let’s address some of the common issues:

·       Life Insurance – Requires a death certificate and can take one month to several months to receive, if in an employer plan.

·       Bank accounts – Requires a death certificate and probate, unless in a trust.

·       Retirement Accounts (IRAs and Company Plan) – Require a death certificate and processing time. If proper beneficiaries are not listed, this goes through probate.

·       Annuities – Same as above.

·       Brokerage Accounts – Requires a death certificate and probate, if not in a trust.

·       Children as joint owners – divorce, creditors, lawsuits, gift tax, etc.

·       Pre-paid Funeral – Not enough money and only covers funeral. If any money is left, it must go through probate.

Carol: When the artist Prince passed away, his estate was valued at $300 million. The family did not have access to these funds for his funeral. The actor George Lopez gave $25,000 to the family for the funeral expenses, along with travel expenses for his siblings to come to funeral.

Tracy: What other options are there?

Carol: I find that most of our clients have unintentionally not thought through managing their final expenses. Those that have had opted to either pre-pay a funeral home or fill this gap by using a Beneficiary Liquidity Plan (BLP).  I personally am not a fan of pre-paying for a funeral. Several people have shared with me: “Although my parents pre-paid for their funeral, there were many extra expenses that were added once they passed.”  In addition, most “Mom and Pop” funeral homes have been taken over by corporate owners and don’t do business the way the original owners did. And if the original owners of the funeral parlor are still there and your father pre-paid $20,000 for his funeral and the funeral directors bill was $15,000, the balance goes to your father’s estate. What’s so bad about that? Probate!!!

There is another was to plan, which is called a Beneficiary Liquidity Plan. This provides liquidity in 24-48 hours without a death certificate. This is making it easier on your sons during one of the most difficult times of their lives. They don’t have to come up with money or go back and forth the with funeral home if they had to do a collateral assignment. They can use money the family is going to receive at death, but eliminate the waiting period to get access. The goal is to make sure the family has access to enough funds to get them through the first 30-45 days, until the estate can be settled properly. This is not making the inheritance any bigger or any smaller. It is just reallocating funds they will receive anyway. 

Mike: What would something like this cost, and for how long would I need to make premium payments?

Carol: You are not making any payments. You would be using money you’ve already carved out, making it easier for your children during their time of grieving.

I recommend putting as little as you think necessary. The difference with this, versus the prepaid funeral option, is any funds you put into this trust gets over-nighted to both the funeral director and the beneficiaries at the same time.

Franklin Planning takes no responsibility for the current accuracy of this information. Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC.  Advisory Services offered through J.W. Cole Advisors (JWCA). Franklin Planning and JWC/JWCA are unaffiliated entities. Securities are not FDIC insured or guaranteed and may lose value.  Investments are not guaranteed and you can lose money.   This presentation is for educational purposes only and is not an offer to buy or sell an investment. Neither Franklin Planning and JWC/JWCA are tax or legal advisors and this information should not be considered tax or legal advice.  Consult with a tax and/or legal advisor for such issues.