One of the primary goals of estate planning for most people is to ensure that their family members and loved ones are provided for financially in the event of their death. If that is among your top estate planning priorities you also need to consider something else that may not have occurred to you – estate liquidity. Leaving behind assets for loved ones doesn’t help if they cannot access those assets. At this point you may be asking “ How do I know if my estate has enough liquidity ? ” The best way to answer that question is to sit down with your Texas estate planning attorney and review your individual estate plan; however, a better understanding of the concept of liquidity is a good place to start for now.
Think of the term ‘liquidity’ as referring to the cash value of an asset. Under some circumstances, an assets immediate cash value is more important than its overall value. For example, if you are on a road trip and your car breaks down you will need to call a tow truck to tow you to the nearest service station. The tow truck driver will expect payment. At that moment, having $100,000 of equity on your home, a retirement account with $150,000 in it, or a $250,000 stock portfolio doesn’t do you any good; however, the $500 in cash you brought with you for the trip will help. Therefore, the $500 in liquid assets you had at the time were actually more valuable than any of your other non-liquid assets.
Liquidity in your estate plan works along the same lines. After your death, your estate will likely have to go through the legal process of probate. Assets that are required to pass through probate will not be available to the intended beneficiaries until the conclusion of probate, making them essentially worthless to the beneficiaries for months, even years, after your death. Your spouse cannot pay the mortgage payment with assets held up in probate nor can your child’s college tuition be paid with those assets.
To determine if your estate has enough liquid assets you need to separate probate from non-probate assets. Non-probate assets bypass the probate process, making them immediately available to beneficiaries. Some common non-probate assets include:
- Assets held in a trust
- Proceeds from a life insurance policy
- Certain types of jointly held property
- Assets held in a “POD” or “TOD” account
If your estate is lacking in liquid assets it may be time to sit down and make some changes to your overall asset portfolio. If you have additional questions or concerns about estate liquidity or your Texas estate plan in general, contact the experienced Texas estate planning attorneys at The Mendel Law Firm, L.P. by calling 281-759-3213 to schedule your appointment today.
Stephen A. Mendel, Estate Planning Attorney
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