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 North Andover estate planning attorneys at DeBruyckere Law Offices explain what estate liquidity is and why it is something you should pay attention to within your estate plan.
Protecting Loved Ones in Your Estate Plan
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 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.
Probate Basics
The issue of insufficient estate liquidity will not become apparent until after you are gone during the probate of your estate. Probate is the legal process that will follow your death. Probate serves several purposes, starting with identifying and securing assets owned by the decedent. Eventually, any assets remaining at the end of probate will be transferred to the intended beneficiaries and/or heirs of the estate. Probate also serves to authenticate the decedent’s Last Will and Testament, if one was left behind, as well as provide a forum for challenging the validity of that Will.
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. 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 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 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.
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.
Contact a North Andover Estate Planning Attorney
If you have additional questions or concerns, please contact a North Andover estate planning attorney at DeBruyckere Law Offices by calling our New Hampshire office at (603) 894-4141 or our Massachusetts office (978) 969-0331 to learn more or visit our website at http://dadlawoffices.com .
Your home is not a very liquid asset because it typically takes months to turn the value of real property into cash.
Proceeds of a life insurance policy, payable on death accounts, and assets held in a trust are non-probate asset, meaning it can be distributed to your loved ones right away.
Probate allows creditors of the estate to file claims against the estate and ensures that all state and federal gift and estate taxes are paid using available estate assets.
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