Estate planning, when done properly, involves a number of inter-related goals and objectives that all come together in one cohesive plan. Although the primary reason for your estate plan might be to ensure that your estate assets are distributed according to your wishes after you are gone, that is likely not your only goal. In addition, there are a number of other considerations that can have a direct impact on that goal. For example, have you considered the impact your estate’s liquidity will have on your overall estate plan? To ensure that you do, the estate planning lawyers at Hedeker Law Ltd., explain why estate liquidity is so important and how to figure out whether your estate includes sufficient liquid assets.
Estate Planning Goals and Priorities
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. Protecting estate assets and protecting loved ones as well as providing for those loved ones in the event of death or incapacity are common priorities when estate planning. 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. Instead, you need to make sure your estate has sufficient liquidity as well.
What Does “Liquidity” Mean?
Liquidity is a term used when referring to the value of an asset. In fact, you may have heard people refer to “liquid assets” before in conversation. A liquid asset is one that can 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 and/or quickly they can be turned into cash. Your home, for example, is not a liquid asset because it would take months to turn the home’s value into cash.
Why Is Liquidity An Important Estate Planning Consideration?
When you are creating, or updating, your estate plan it is important to know the value of your liquid assets and take that value into consideration for several reasons. One important reason your estate’s liquidity matters is for federal (and in some instances state) gift and estate taxes. If your estate is likely to owe gift and estate taxes, 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 ahead 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.
The other important reason you need to consider the type of assets you leave behind is to ensure that your loved ones have immediate access to funds in order to pay bills and purchase necessities. This often means that you need to include non-probate, liquid assets in the estate you leave behind. Not all assets are required to go through the probate process. Assets that bypass the probate of your estate are available to pass down to the intended beneficiaries shortly after your death. If your spouse, for example, will need immediate access to funds to support herself/himself and your children, you need to make sure your estate includes non-probate assets. Those non-probate assets will also need to be liquid assets if you wish your spouse to benefit from the value of the asset immediately. Proceeds of a life insurance policy are an excellent example of a non-probate liquid asset. Life insurance proceeds do not go through the probate process and they can be converted to cash virtually immediately.
Contact Estate Planning Lawyers
For more information, please download out FREE estate planning worksheet. If you have additional questions or concerns regarding estate liquidity, contact the experienced estate planning lawyers at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment