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 Coral Gables estate planning attorneys at Stivers Law explain why liquidity may matter in your estate plan.
Estate Planning Basics
A well thought out estate plan can accomplish a wide range of goals; however, there are a few goals that are usually at the center of an estate plan. If you have a spouse and/or children, for example, you likely want to make sure that you leave enough assets behind that they do not suffer financially when you are gone. Simply stockpiling assets, however, will not be sufficient to achieve this goal if you fail to consider the impact estate liquidity can have on your overall plan. Moreover, if your estate lacks liquidity it won’t become apparent until after you are gone during the probate of your estate. Probate is the legal process that will follow your death.
What Is “Estate Liquidity?”
You may have heard people refer to “liquid assets” before in everyday conversation. A liquid asset is one that can quickly and easily be converted into cash. Obviously, cash held in a checking or savings account qualifies as a liquid asset. Other assets have varying degrees of liquidity, based on how easily you can convert the asset’s value into cash. Your home, for example, is not a very liquid asset because it typically takes months to turn the value of real property into cash. Most people have a mix of liquid and non-liquid assets within their estate assets. For estate planning purposes, however, it is important to understand you’re 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 are one aspect of probate that can be directly affected by an estate’s liquidity. Every estate is potentially subject to federal and/or state gift and estate taxes. If your estate does incur a gift and estate tax obligation, that tax debt must be paid before any estate assets can be distributed to the intended beneficiaries of the estate. If you fail to plan by ensuring that 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. That could result in the need to sell your family home or other family heirlooms that you never intended to be sold.
One of the most important reasons to consider your estate’s liquidity, however, can be found in how probate works if one of your goals is to provide for loved ones in your absence. Estate assets are divided into probate and non-probate assets. As the name implies, probate assets are required to go through the probate process before they are available to the intended beneficiaries. Non-probate assets, on the other hand, 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 a family in the event of your death, it is crucial that you 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 Coral Gables Estate Planning Attorneys
For more information, please join us for an upcoming FREE webinar. If you have additional questions or concerns about making sure your estate has sufficient liquidity, contact the experienced Coral Gables estate planning attorneys at Stivers Law by calling (305) 456-3255 to schedule an appointment.
Justin serves as a member of the American Academy of Estate Planning Attorneys (AAEPA), a national organization comprised of legal professionals concentrating on estate planning. As a member of the Academy, he receives ongoing, comprehensive training on modern estate planning techniques.
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