The Beneficiary Liquidity Plan

How Will Your Beneficiaries Pay for Your Funeral?

A few weeks ago, I came across a strategy that I was unaware of.  Because this is happened to me personally, I felt it paramount to do a deep dive on this.

I don’t like to promote products but rather educational topics.  However, being in the financial arena, we do need to explore specific products from time to time to understand how they work in order to make informed decisions.

The first thing I want to mention is a very great loss in my family: my dad’s older brother, my uncle Ron passed away on Wednesday.  It’s sad. He was one of the men in my life that helped shape me into who I am.  My dad, most of you did not know. My father was born with retinal glaucoma. Cancer of the eyes.  He was blind in one eye and their mother, Tub, my grandmother, was challenged as a registered nurse to raise three boys as a single mom. Not only did she raise three boys, but her middle son was also handicapped.

My dad passed away about 20 years ago, but during my life what I always knew was that my dad’s brothers were always there, and they were cut from a cloth that I don’t see much of any more.

Uncle Ron was a husband, a father to my cousin Jimmy who was adopted first, and then he was able to bear two other children, Holly and Brock, who he was very proud of.  He had a Virginia license plate “DOCnJOCK.” My uncle was the jock, his wife the doctor.  He was all state in Florida before he became a Navy seal.  Played football, loved football.  He got out of the military and went to work for the high school, he then committed and supported his wife, my aunt, while she got through medical school and become an MD. I truly believe that had my Aunt Barb not been a part of his life my Uncle Ron would’ve passed much sooner. It was her or medical awareness that kept him as healthy as he could be. He was also a brother to my dad and my uncle Dave, the youngest. He was a high school football coach.  He just showed me and gave me a lot of character.

I will truly miss him. Until we meet again. I do not believe it’s final, I do believe that we move on to other things unknown.

But the reality is while we are here, we must plan.  Do you know who paid for Princes’ funeral?  The man was worth 156 million dollars, and his family had to borrow money to bury him.  George Lopez the comedian gifted Princes’ family $20,000 to cover those costs.  Now why does the family of a man who was worth so much not have the money to pay for his celebration of life?

When I was down in Kentucky recently, I met this gentleman that was sharing this information with me, I started to think back. Some of you know I lost an advisor and friend who I mentored in South Carolina last year.  He was 57 years old and had a tree fall on him when he was working on his farm.  Freak accident. Since it was during Covid and because he was his own advisor who wrote his own policies, one of the things that stood out to me was when his spouse called me who I had never met, never spoken to before, asking for my help to decipher this information.

She started to send me documents from different insurance companies, brokerage accounts, all this stuff.  On the surface, you say, “he had life insurance, he had death benefits, he had money in the bank…”  but a lot of this stuff was tied up in his name.  What I realized at that point in time is that the immediate moment, like my uncle Ron who just passed away on Wednesday, the family’s going to need cash.  Now if you’re married and you have cash and you have a joint checking account, money is available.

Typically there’s some money and funds set aside.  But it’s at the loss of the other spouse that things can get squirrely. It took seven months for the medical examiner to issue a death certificate with the cause of death to the spouse of my friend Jeff.  You would think, natural causes, tree fell on you, how difficult could it be?  But because it was such a freak accident, because of Covid, it took a long time.

You may say, that’s a rare circumstance.  So this gentleman started to share some statistics on how long it takes to get a death certificate across the nation,  and we went and pulled New Jersey’s processing time and saw that New Jersey is 4-6 weeks if you file online to get a death certificate. That’s what you need in order to get access any funds – a death certificate. You can go downtown to East State Street in Trenton for same day processing, but good luck with that.  Governments are short-staffed and overwhelmed.

When I was in Kentucky the statistic he shared with me, in Texas it’s taking 25 to 30 days.

Most people think they can access dollars upon the death of their family member through their life insurance policies or annuities.  But what became evident to me, if these companies don’t have a death certificate, if there is an issue where there it was not a definitive cause of death, they will not be able to pay the claim until they have that information. If the death certificate you get says “cause of death unknown,” you’re in trouble.

Another thing people think offers them security is a living trust.  Say you have bank accounts with TODs (transfer on death) or PODs (payable on death).

Power of attorney.  Power of attorney is while they’re alive. After they die, you need to the will, the trust, the executor.

Maybe you’ve thought of final expense insurance.  

ALL OF THESE THINGS require a death certificate. And that is a cog, or a fly in the ointment. That’s the challenge.

So that what was appealing to me about Beneficiary Liquidity Plan.  Funds that typically people are going to give to the beneficiaries anyway, they can utilize for a single premium guaranteed fixed whole life insurance policy paired with an irrevocable living trust that is payable to the beneficiary on death WITHOUT a death certificate within 24-48 hours of death.

The funds grow tax deferred, that’s not why we’re doing it.  The key is that it pays within 24 to 48 hours with just a signature from the funeral home director.  We don’t have to borrow funds from the funeral home at probably at above going rates.  There are no health questions on the application.  Doesn’t matter. As long as you’re not in triple digits.

You wouldn’t set up this plan to get rich or for leverage like traditional life insurance.  It is only to make sure that the people that are in her life, that they are not burdened upon your death.

And this is another scenario… you have three children. One child who is the closest who’s taking care of mom or dad says, you know what, you guys are over there, I’ll pony up the money and take care of this for right now and you can reimburse me later. Then it doesn’t happen and now there’s a rift in your family.  I’ve always said money makes people funny.

You can setup a plan like this for as little as $2,500.  You could do $5,000 one-year, $5,000 the next and stack them together.  The max allowable is $100,000.  

If you put in $20,000, that’s what your beneficiaries are going to get back.  Technically there’s a small death benefit, but it will be something very minimal like $500 or some small amount but that’s not what this is for.  Its purpose is creating liquidity for the family at a point in time when they need it.  It just takes a lot of the stress that can typically happen off the table.

So how do you fund it?  I am setting a client up right now, and he’s divorced, 73.  He’s taking RMDs now.  And I asked him, are you using those, and he said no, that money goes right in the bank. He has to pay taxes on it next year so we’re setting up a 10% free withdrawal to fund this so that his son who is executor doesn’t have to deal with this nonsense when he passes.

If you got some old contracts, you want to make them liquid.  You have an old brokerage account, mattress money. I just had a couple who had money sitting in the bank without interest.  We repurposed it to make it liquid for their beneficiaries. 

$15,000 is the national average for a funeral, and it’s the same in New Jersey.  You don’t have to go nuts here, but it’s just a smart and prudent idea in my opinion to set this up for your beneficiaries.

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