Does My Estate Have Sufficient Liquidity?

Estate planning often involves creating a complex plan that achieves a wide range of inter-connected goals. Your estate assets are usually at the center of that comprehensive plan. While you may be focused on amassing as many assets as possible, you could be overlooking another important aspect of estate planning – estate liquidity. The Overland Park estate planning attorneys at Parman & Easterday explain what estate liquidity is and why it is important to  pay attention to it within your estate plan.

Protecting Loved Ones in Your Estate Plan

A well thought out estate plan can accomplish a wide range of goals.  There are a few goals that are usually at the center of an estate plan. Protecting estate assets so they are there for your loved ones when you die or become incapacitated is a common priority. If you have a spouse or children, you want to make sure you leave them enough that they do not suffer financially when you are gone. Simply stockpiling assets is not sufficient to achieve this goal if you fail to consider the impact estate liquidity can have on your overall plan.

Probate Basics

The issue of insufficient estate liquidity won’t become apparent until after you are gone.  It will arise during the probate of your estate or the administration of your trust if you have one. If you die without a trust, be it with a will or without one, probate will be required.  It serves several purposes, such as identifying and securing the assets you owned at death, identifying your creditors and beneficiaries, settling your taxes and other obligations, and finally transferring any assets remaining at the end of probate to your intended beneficiaries and heirs of the estate. Probate also serves to authenticate your Last Will and Testament, if you had one, and provides a forum for others to challenge the validity of the Will.

What Is “Estate Liquidity?”

You may have heard people refer to “liquid assets” in everyday conversation. A liquid asset is one that can quickly and easily be converted into cash. Cash in a checking or savings account is a liquid asset. Other assets have varying degrees of liquidity, depending on how easily the asset’s value can be converted into cash. Your home usually is not a liquid asset because it  can take months for it be sold and turned into cash. Most people have a mix of liquid and non-liquid assets within their estates. For the purpose of estate planning, it is important to understand your estate’s liquidity because it will impact the probate of your estate and may adversely impact your loved ones after you are gone.

Taxes can directly affect an estate’s liquidity. If your estate incurs a gift or estate tax obligation, this tax debt must be paid before any estate assets can be distributed to the intended beneficiaries. If you fail to ensure your estate has sufficient liquid assets on hand to cover the tax debt, your Executor will be forced to sell non-liquid assets to satisfy the tax obligation. This could result in the need to sell your family home or other family heirlooms that you never intended be sold.

An important reason to consider your estate’s liquidity may be your desire to provide for your loved ones in your absence. Estate assets are divided into probate and non-probate assets. Probate assets must go through the probate process before they are available to the intended beneficiaries. Non-probate assets bypass the probate of your estate and may be immediately distributed to the intended beneficiaries shortly after your death. If one of your estate planning goals is to provide for your family at your death, you need to include sufficient liquid, non-probate assets in your estate to accomplish this goal. Proceeds of a life insurance policy, for example, are non-probate assets and can be distributed immediately after your death. Cash held in a trust is also a non-probate asset, meaning it can be distributed to your loved ones right away.

Contact Overland Park Estate Planning Attorneys

For additional information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about liquidity within your estate plan, contact the experienced Overland Park estate planning attorneys at Parman & Easterday by calling 405-843-6100 to schedule your appointment today.