A successful estate plan requires you to do far more than simply decide who will receive which assets upon your death. Simply gifting assets may not accomplish your primary goal if that goal is to ensure that loved ones are provided for after your death. The reason for this is that the probate process may make those assets inaccessible to the intended beneficiary for months, even years, after your death. To plan for this potential problem you need to make sure your estate has enough liquidity. This raises the question “How do I know I my estate has sufficient liquidity?” To answer that question you need to understand the concept of liquidity as well as understand the basics of the probate process.
Probate is the legal process required of most estates after the death of an individual. Probate accomplishes several important objectives, including:
Allows creditors of the estate to file claims against the estate and allows for payment of valid claims.
Ensures that taxes owed by the decedent and/or the estate are paid.
Provides for the legal transfer of ownership of all remaining estate assets to the intended beneficiaries or heirs of the estate.
Assets that are required to go through probate are generally not available to the intended beneficiary or heir until the probate process is completed, meaning they will be held up for a minimum of six months and often longer than a year. If loved ones are counting on those assets to provide the funds necessary to pay bills and living expenses it creates a huge problem. This illustrates why sufficient estate liquidity is imperative.
The term “estate liquidity” refers to the immediate cash value of assets in the estate. A home worth $500,000 does not help support your loved ones if the home is tied up in probate. To create the necessary estate liquidity you need to include sufficient non-probate assets in your estate plan. These assets are not required to go through probate. Therefore, the cash value of the asset is immediately available to the intended beneficiary following your death. Some of the most common non-probate assets include:
Some retirement and pension plans
Accounts designated as “payable on death” or “transfer on death” (POD or TOD)
Assets held jointly with rights of survivorship
To review your estate plan to ensure that you have sufficient estate liquidity, or if you have additional questions or concerns about estate liquidity, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.
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- Beneficiary Designations and Other Non-Probate Transfers - August 15, 2020
- Leaving Assets Can Be Tricky – Part 3 - August 13, 2020