Tax Liquidity Planning

Peak tax season is now upon us. As you wrap up your year-end taxes, it’s a good time to reflect on how taxes could affect your loved ones or business when you pass.

What Is Tax Liquidity Planning?

Estate taxes can present significant financial challenges, especially for those with substantial illiquid assets. When estate taxes are combined with illiquid assets, such as a closely held business interest, they can force the sale of these assets at unfavorable terms. Tax liquidity planning ensures that estate taxes can be paid without jeopardizing the business or other assets when the business is passed on to the next generation.

Who Can Benefit from Tax Liquidity Planning?

Hylant collaborates with the personal advisors of the following types of people to implement effective wealth protection strategies through innovative life insurance solutions:

• High-net-worth individuals with estate tax exposure: Wealthy individuals who still face estate tax exposure despite planning may struggle with liquidity issues, making it difficult to pay taxes without selling assets.
• Business owners: Those planning to pass on closely held business interests often face liquidity challenges when a significant portion of their net worth is related to the business.

How Does Tax Liquidity Planning Work?

Tax liquidity planning with life insurance involves purchasing a policy to cover estate tax liabilities. Upon death, the proceeds are used to fund estate taxes, protecting other assets from forced sale. This ensures the estate remains intact and transitions smoothly to the next generation.

The benefits of incorporating life insurance into planning include the following:

• Tax-free death benefits: Provides immediate, tax-free liquidity, which negates the need to liquidate assets
• Absolute guarantees (when programs are properly designed): Ensures funds are available when needed
• Liquidity: Facilitates liquidity without asset liquidation
• Effective estate planning: Bridges potential financial gaps in estate planning
• Maintained asset value: Avoids forced sales, potentially increasing asset value over time

Hylant can help you secure your legacy with customized life insurance solutions that protect your assets for the next generation.

Related Reading: Life Insurance as a Financial Tool for Businesses

The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.