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How do I know if my estate has enough liquidity?

By March 16, 2015

Liquidity planning is part of estate planning. Generally, it is necessary to look at the estate and see if there is enough cash to pay taxes, administrative expenses, and support dependent family members. There are generally two ways to deal with the liquidity issue, either by reducing taxes and expenses which require cash, or by increasing the cash and liquidity of the estate. Techniques which reduce taxes include fully using the $2 million exemption at death (for the year 2006), making annual gifts, and using planning techniques such as GRITs and QPRTs. Other techniques which reduce expenses include avoiding probate and using a Living Trust. Of course, increasing the liquidity of the estate can be done through conversion of assets as well as life insurance.