An estate must have sufficient liquid assets to pay all taxes, expenses, and allowed debts in full. The availability of cash to pay Federal Gift & Estate Tax liability is tantamount to proper Life Planning. For many families, the payment of estate taxes is an ominous obstacle that devours a major portion of their inheritance. The whole affair can be a nightmare; but with proper planning, it does not have to be such a disaster.

Settlement Costs. Some common expenses of settling your estate include funeral costs, cost of Probate (3% to 10% of your estate; see section on Avoiding Probate), and Federal Gift & Estate taxes. Settlement costs will diminish the value of the legacy and if liquid assets are not available, heirs may be forced to borrow against estate assets or even sell estate assets to reconcile the settlement of the estate.

Life Insurance. If liquidity may be a problem, life insurance should be seriously considered as a means to satisfy the anticipated cash expenses of the estate. Joint Life Insurance. If a couple chooses to defer payment of Federal Gift & Estate Taxes until the end of the surviving spouse's estate, Joint Life Insurance ("second-to-die insurance") is often used to pay for Federal Gift & Estate Taxes. Joint Life Insurance provides a single policy that insures two lives (usually spouses). When the first spouse dies, no proceeds are paid. Indeed, the policy remains in force, and premiums must continue to be paid. The policy only pays off on the death of the second spouse. This type of insurance can be particularly desirable when a major family asset is a family business, or real estate interest - assets that are not liquid, and which the survivors may not want to sell.

NOTE: There are a wide variety of life insurance products available that have specific purposes. Always seek the assistance of your Life Insurance Professional or Estate Attorney when coordinating Life Insurance with your Estate Planning goals.