Imagine this, you inherit a beautiful $15 million estate. Maybe it’s a stunning house, some valuable investments, maybe it’s a business that your family’s been running for generations. Now, more than likely, you’ve already thought about what you might do with these funds. But then you find out there’s an estate tax bill due in nine months. And it’s not a small amount. It’s $2 million. Now, suddenly, you realize that while you’ve inherited all these amazing assets, you may not have enough cash to actually pay for things, and so you’re stuck. Now, this is a common issue called estate liquidity. You might have wealth on paper, but if you don’t have enough cash, then you might be in trouble. Hi, my name’s Ken Hargreaves. I’m president of WealthGen Advisors, and today I’m going to show you how you can avoid leaving your heirs with an estate full of assets that it can’t actually afford to maintain. Now, there’s a few key problems that cause estate liquidity issues, and I want to break them down for you.
The first one is estate taxes. Now when someone passes away and they leave behind a sizable estate, their heirs often owe taxes on it. Now the kicker, they usually have about nine months to pay and if there’s no cash in the estate to cover it, well they’re in a tough spot. Next is a business ownership. If you own a business you might have a family heir who will inherit it, but if there’s no buyer lined up or the business isn’t easily sellable then your heirs could really find themselves stuck with a company that they can’t easily sell to cover costs, which then could lead to selling for a much, much lower price than anticipated. And finally, real estate. If your heirs inherit a large property, it can be a great asset, but when it comes to costs, maintenance, property taxes, insurance, without cash reserves to cover those costs, they could really end up in a situation where they have a property that they can’t afford to keep.
Now it’s like inheriting something really valuable but finding out its costs are way more to maintain than you ever imagined. So how do we fix this? How can you make sure that your heirs don’t end up in that kind of position? Well there’s a few simple steps that have powerful solutions. The first one is just having cash reserves. Setting aside liquid cash or assets that are easy to access that can help your heirs cover those costs without having to scramble. Now having liquidity reserves means they don’t have to worry about selling off the family home or a business just to pay those taxes. Now the second is life insurance. Believe it or not many people use life insurance to fund their estate tax liability. It can provide a big lump sum of cash that your heirs can use to pay off that estate tax or cover any other costs associated. So they don’t have to sell assets to make ends meet. Another super easy solution for business owners is a buy-sell agreement. Now if you have a business this agreement can make sure that if something happens to you
Your business can be bought by a pre-arranged buyer, avoiding a situation where your family inherits a business with no interested buyers. Now, you can also explore gifting strategies or charitable trusts, loans or tax deferrals, so there’s a lot of different options, but these can give your heirs some time to sell assets or make arrangements without the immediate pressure of paying a large estate tax bill. Now, here’s what you can do right now to make sure your estate is ready for the future. Start by calculating your estate’s monthly cash needs. Know what your family will need to maintain things like property taxes or business expenses. Next, review your insurance coverage. Do you have enough life insurance to cover taxes or other costs? If not, then it might be time to consider making some adjustments. Also, think about setting up a liquidity reserve, whether that’s cash or other easily accessible assets. It’s important to have something ready for when the bills come due. And lastly, talk with an estate planning professional just to help put everything in place. Don’t let your legacy turn into a fire sale. Let’s talk about how you can start putting these strategies in place today. Thanks for listening.
