Many larger estates have far too little cash.
Income taxes can be a large amount and easy to see, but do not fail to notice charitable or specific cash bequests, and amounts required to equalize the value received by heirs. The costs of probate, lawyers, estate trustees, a funeral, various filings with the attendant valuations can add up too.
The first step in a good estate plan is to minimize the things that will cost cash in the estate. Better tax plans are the most common. Estate freeze, trusts, and so on. Charitable bequests while living sometimes work. In the end there will be some irreducible minimum amount that must remain because the cost to make it less is more than the saving.
The key revelation is how much the estate requires is not a problem. Having a way to make the deposit to cover the resulting checks is a problem.
Listen to Harvey MacKay from “Swim With The Sharks Without Being Eaten Alive”
Lesson 62 — “If you have a problem you can buy your way out of, you don’t have a problem, you have an expense.”
Now I don’t know about you, but for me if I have a certain expense the first thing I want to know is how can go about paying for it more efficiently. Like paying life insurance premiums annually is cheaper than paying monthly.
Paying estate costs is more subtle and once the minimum need is planned, finding a way to have the money available becomes the challenge. As it turns out there are just four ways. Each has a cost. You control two of them and your executors control the other two.
Your executor will control sell assets and borrow.
- Selling assets is a risky choice because of the executor year problem, the costs and fees to dispose of assets, and the potentially adverse market at the time of sale. Everyone knows “estate sale” means bargain and that means a negotiated discount. Executors tend to sell what they can, not what they should.
- Borrowing requires security and that could tie up a big piece of the estate, maybe for a long time. Meanwhile, interest is not deductible for tax purposes and there really is no guarantee that there will be a willing lender at a low price. Borrowing is usually just a deferred sale.
You control own cash or own life insurance
- Owning guaranteed cash is problematic because of the opportunity cost. Low interest and bad taxation of income makes this a very expensive choice.
- Life insurance is a conditional option on money. Its tax advantages and ability to provide money exactly when needed, even if very soon, makes it a high yield investment for estate purposes.
If you decide value by the amount the heirs finally receive, life insurance is the least costly way to be sure the borrow and sell problems don’t arise. It is simple and easy to arrange. It should be carefully considered before choosing another way.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772