Why is liquidity important in your estate plan?
Your estate’s assets are often the foundation of a comprehensive estate plan. You may be focusing on accumulating assets but you could be overlooking another important aspect of estate planning. To help you better understand, the Indianapolis attorneys at Frank & Kraft explain why liquidity is important in your estate plan. To help you understand, the Indianapolis lawyers at
Frank&Kraft
explain the importance of liquidity in your estate plan. You may want to leave your spouse or children enough assets to avoid them facing financial hardship after you die. Simply accumulating assets, however, is not enough if you fail to consider the impact of estate liquidity on your overall plan.
Understanding Probate
The lack of liquidity in your estate often becomes apparent during probate. Probate is used to identify and secure the assets owned by a deceased person, before distributing any remaining assets or assets to beneficiaries or heirs. Assets that are stuck in probate cannot be accessed by the intended beneficiaries. This can cause delays. This process can be frustrating for your loved ones, who may need immediate access to funds for living expenses, debts, or other financial obligations.
What Is “Estate Liquidity?”
A liquid asset is one that can be quickly and easily converted into cash. Cash in a checking or savings account is an example. Liquidity varies among other assets. Your home, for example, is not very liquid since it can take months to sell real estate. Stocks and bonds, however, are more liquid than cash. It is essential to understand your estate’s liquidity for estate planning purposes, as it affects probate and may impact your loved ones after your death.
The Impact of Taxes on Estate Liquidity
Taxes can significantly impact an estate’s liquidity during probate. Taxes can have a significant impact on an estate’s liquidity during probate. These taxes must be settled before any estate assets are distributed to beneficiaries. Your Executor may be forced to sell assets that are not liquid to cover the tax obligation. This could include your family home or valuable items. This situation can lead to the forced sale of assets you intended to pass on to your heirs, potentially at unfavorable prices due to time constraints.
Why Is Estate Liquidity Important?
Considering your estate’s liquidity is vital if your goal is to provide for loved ones after your death. Estate assets are divided between probate assets and non-probate estate assets. Probate assets are subject to the probate process. Non-probate estate assets can be distributed directly to beneficiaries. Include enough liquid, non-probate estate assets to ensure that your family is taken care of. Life insurance proceeds, for example, are non-probate and can be distributed to your loved ones immediately after you die. Similarly, cash held in a trust is a non-probate asset, allowing for quick distribution to your loved ones.
Strategies for Ensuring Liquidity in Your Estate Plan
There are several strategies you can employ to ensure your estate has sufficient liquidity. Investing in life insurance is one way to ensure your estate has enough liquidity. Life insurance policies pay out to your beneficiaries immediately upon your death. This avoids the probate process. Establishing a revocable trust is another strategy. You can transfer assets into the trust to ensure that they are managed and distributed in accordance with your wishes, without having to go through probate. These investments can be converted into cash quickly when needed. Additionally, keeping an emergency fund in a readily accessible account can provide immediate liquidity for unforeseen expenses or financial obligations.
Given the complexities involved in ensuring adequate estate liquidity, consulting with an experienced estate planning attorney is the best way to develop a comprehensive plan that ensures sufficient estate liquidity.
Do You Have Additional Questions about Liquidity in Your Estate Plan?
For more information, please join us for an upcoming FREE seminar. Contact an experienced Indianapolis estate planner at
Frank & Kraft or call (317) 684-500 for an appointment. Read More! Latest Posts by Paul A. Kraft Estate Planning Attorney
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