For most people, the primary purpose of estate planning in St Louis, Missouri is to provide for family and loved ones upon death. Providing for your loved ones in the long-run through your estate plan is certainly essential; however, you also need to ensure that they are taken care of in the short run as well. To do this, your estate plan must include sufficient liquidity. If a review of your plan shows a lack of liquidity it may be time to revise your plan.
Liquidity refers to the immediate availability of an asset’s value. Cash is the most liquid of all assets. The easier an asset can be turned into cash the more liquid the asset is. Imagine this scenario. You are on a road trip in your vehicle and come upon a toll booth that requires you to pay a toll of $2.50 to proceed. You have no way to pay the toll; however your three passengers all offer to help. One passenger offers to write you a check for $25.00. Another passenger offers you a silver ring worth $50 and the final passenger offers you cash in the amount of $2.50. Clearly the ring has the highest value; however, the cash has the most liquid value because both the ring and the check would have to be turned into cash to be of value to you at the moment.
The same very basic concept applies to your estate plan. When you die, your family members and loved ones will need immediate access to funds to pay for your funeral and service as well as to pay basic living expenses. Assets left behind that are required to go through probate will not be immediately available to the intended beneficiaries, meaning they are not liquid assets. Creating estate liquidity can be accomplished using a variety of different methods; however, some common strategies include:
- Life Insurance – life insurance proceeds bypass probate, meaning the beneficiary receives the funds shortly after your death.
- Living Trust – assets held in a living trust may not be included in your estate. The terms of the trust could call for immediate disbursement of some, or all, of the funds in the event of your death.
- POD/TOD Accounts – “Payable on death” and “Transfer on death” accounts can be used for financial accounts and/or securities to transfer ownership of the asset upon your death without the need for the asset to go through probate.
Consult with your St Louis Missouri estate planning attorney to ensure that your estate plan has enough liquidity to provide immediate access to funds for your family and loved ones.