When it comes to estate planning, the numerous inter-related goals and objectives can become overwhelming rather quickly. If you are not careful, important aspects of your estate plan could be overlooked. For example, have you considered the impact your estate’s liquidity will have on your overall estate plan? If the answer to that question is “no.” it is probably time to give it some thought. The probate attorneys at Law Offices of Kobrick & Moccia explain estate liquidity and discuss why it is something that should not be overlooked in your plan.
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 loved ones, as well as providing for those loved ones in the event of death or incapacity are common priorities. 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.
What Is “Estate Liquidity?”
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 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 the ease with which you could extract the cash value out of them. Your home, for example, is not a liquid asset because it may take months to turn the home’s value into cash. Most people have a mix of liquid and non-liquid assets within their estate assets. For the purpose of estate planning, however, it is important to understand your estate’s liquidity because it can significantly impact the probate of your estate when the time comes.
Why Is Estate Liquidity Important?
The value of your liquid assets is important for several reasons that relate to estate planning and the eventual probate of your estate. Probate is the legal process that is required following an individual’s death. One of the many goals of the probate process is to identify and value all the decedent’s estate assets. Although those assets are eventually distributed to the intended beneficiaries of the estate, that only happens at the end of the probate process. One important reason your estate’s liquidity matters is for federal, and depending on the state, possibly 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 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.
In addition, estate assets are also divided into probate and non-probate assets. As the name implies, 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 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. Real property valued at $5 million does your family no good if the property is held up in probate and then must be sold once released to the intended beneficiary. A bank account with a “Payable on Death (POD)” designation that has $100,000 in it at the time of your death is actually more valuable to the beneficiary because the POD designation means the assets bypass probate and those assets are highly liquid in nature. Ultimately, the liquidity of the $100,000 bank account makes it a more valuable asset than the $5 million home during the time period following your death.
Contact Probate Attorneys
For more information, please download our FREE estate planning worksheet. If you have questions or concerns relating to the importance of liquid assets in your estate plan, contact the experienced probate attorneys at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.