For most people, the primary reason for creating an estate plan is to ensure that family members and loved ones are provided for in the event of death or incapacity. While leaving assets behind for loved ones is certainly necessary to accomplish this goal, it may not be sufficient. The reason for this is that in order for those assets to serve their purpose they must provide immediate access to funds. In other words, they must be liquid assets. Therefore, it is crucial that you evaluate your current, or future, estate plan to make sure it contains enough estate liquidity.
The concept of “liquidity” is rather simple, and is something you likely consider on an everyday basis without realizing it. Liquidity essentially refers to the immediate cash value of an asset. Imagine, for example, that a family emergency requires you to purchase a last minute plane ticket to a third world country where credit cards and other electronic means of payment are often not accepted. Further assume that you have the following assets available to you:
$80,000 worth of stocks and bonds
$250,000 in a retirement account
$50,000 in available credit on various credit cards
$25,000 worth of gold coins and jewelry
$10,000 in your savings/checking accounts
In this situation, your most valuable assets will do you the least good because they lack liquidity. It might take weeks to get to the equity in your home and at least several days to get to your stocks, bonds, and retirement account. You might be able to use your credit cards to purchase the plane ticket but they may be worthless when you get where you are going. The gold coins and jewelry, however, can be converted into cash immediately, making one of your least valuable assets one of your most liquid assets.
Liquidity is important in your estate plan because many assets are required to pass through the legal process known as probate after the death of the decedent. Probate can take months, even years, to conclude. All the while, assets that are part of the probate process are inaccessible to the intended beneficiaries. To accomplish the goal of providing for loved ones you must leave behind sufficient liquid assets as part of your estate plan. Typically this means non-probate assets such as:
Life insurance proceeds
Certain types of jointly held assets
Accounts designated as “payable on death” or “transfer on death” (POD of TOD)
Certain retirement accounts or pensions
To make sure that your estate plan has the necessary liquidity make sure you work closely with an experienced New York estate planning attorney during the creation of your plan. Contact the experienced New York estate planning attorneys at The Law Offices of Saul Kobrick, P.C. by calling 800-295-1917 to schedule your appointment.
Latest posts by Saul Kobrick (see all)
- 529 Plans: Planning for Education with a Tax and Asset Protection Bonus - September 10, 2019
- The Importance of Communicating Your Plans - September 5, 2019
- Planning for the Unexpected - September 3, 2019