9. Sources for Estate Liquidity

Question 1

Estate Liquidity Needs

Answer 1

• Taxes and administrative expenses
• Debts and funeral expenses
• Living expenses for family pending settlement
• Payment of cash bequests to individuals and charities

Question 2

Estate Liquidity Problems

Answer 2

• Forced liquidation
• Sold at less than full value
• Closely held business may have to be sold to an outsider

Question 3

Liquidity Sources

Answer 3

1. Cash or assets that can be converted quickly
2. Sale of decedent’s closely held business interest
   
   1. Buy-sell agreements help
   2. Stock redemption under S 303
3. Life insurance death benefits
   
   1. Provides cash income tax-free
   2. Proceeds included in Gross Estate if
      
      1. Decedent possesses incidents of ownership
      2. Decedent transferred ownership within three years before DOD
      3. Estate is named beneficiary
   3. ILIT as owner and beneficiary
      
      1. Not incl. in GE if bought or transferred more than 3 years earlier
      2. Can loan estate death benefits without inclusion

Question 4

Using a Cash Flow Plan

Answer 4

1. Project when cash inflows/outflows will occur
2. Develop strategies for shortfalls
   
   1. Determine which assets best for sale
   2. Explore ways to reduce estate liquidity needs
      
      1. QTIP election
      2. AVD and special use valuation
      3. Installment payment of estate taxes