The Practical Planner: "Creating Liquidity at Death"

Podcast: The Practical Planner (wealth.com)
Hosts: Thomas Kopelman & Anne Rhodes
Guest: Rachel Hartman (Tax Counsel, wealth.com)
Date: January 21, 2026

Overview

This episode digs deep into the often-overlooked challenge of creating liquidity at death—an essential aspect of estate planning, especially for high-net-worth clients with illiquid assets. Thomas, Anne, and new co-host Rachel Hartman share insider knowledge and actionable strategies for advisors, highlighting why planning ahead is vital to safeguard beneficiaries and efficiently navigate estate taxes, funeral expenses, and probate challenges.

Key Discussion Points & Insights

1. Why Discuss Liquidity at Death?

• Definition and Importance (02:15–04:00)
  • Liquidity is about having enough cash or cash-like assets ready to pay expenses arising at death: funeral costs, estate taxes (due in nine months), ongoing living costs for survivors, etc.
  • Illiquid assets—like businesses and real estate—make this particularly challenging for high-net-worth clients.
  • Anne: “If you have a client where you suspect, hey, at death, their family is going to struggle covering anything from their funeral expenses up to potentially estate taxes—which are due within nine months—you really need to think about what you counsel your client with respect to liquidity.” (03:08)
• Avoiding Forced Sales and Clawbacks (04:37–05:26)
  • Anne emphasizes avoiding forced asset sales under pressure ("fire sales") and having to ask beneficiaries to return funds to cover tax bills.

2. Estate Taxes: Timeline and Returns

• Tax Filing After Death (05:26–06:30)
  • Rachel clarifies: The year of death is filed as “married filing jointly”; the surviving spouse then files using "qualifying surviving spouse" status for up to two years, allowing for potential capital gains exclusions up to $500,000.
• Planning Opportunity
  • Thomas notes there's limited tax optimization here, but underscores the need to focus on the estate tax liability that's due within nine months.

3. Problems with Poor Estate Planning

• Modern DIY Estate Planning Gaps (06:30–07:38)
  • Many high-net-worth individuals lack up-to-date or even basic estate plans, resorting to probate, which can freeze assets and delay their availability.

4. Strategies for Creating Liquidity

• Life Insurance (and More Than Just Coverage) (07:38–09:53)
  • Insurance isn't just for estate taxes—also covers immediate costs like funerals, medical bills, and children’s tuition.
  • Anne shares an anecdote: “A friend’s parents wanted to be buried in Guatemala…all of a sudden, you think about expenses like that for a family that may not have the means…that becomes a burden on the family.” (08:39)

For High Net Worth Estates

• Review Asset Titling & Beneficiary Designations (09:53–11:04)
  • Rachel: Ensure not all assets pass by beneficiary designation or joint ownership—leave enough untied assets in the estate to cover tax and administrative costs.
  • “You want to see within there, what can I do to make sure there is untied up funds whenever it comes time to pay stuff through the estate?” (10:38)
• Avoid Disproportionate Liquidation
  • Thomas: “You have to distribute the entire IRA to cover these taxes…so you’re losing significant amounts of it in the highest tax bracket when you would have been better off to…raise funds from [stepped-up] basis assets.” (11:16)

Unique Asset Strategies

• Survivor Annuities (11:55)
  • Can provide a stable income for survivors, ensuring ongoing liquidity.
• Buy-Sell Agreements for Businesses (12:58–14:01)
  • With only a fraction of business owners having effective, funded buy-sell agreements, Anne and Thomas stress their importance for both business continuity and liquidity.
  • Thomas: “Most people do not want the surviving spouse or their estate to come in and help run that business. But you don’t have a choice unless you set this up correctly.” (13:09)
• Loans as a Temporary Solution (14:01–15:02)
  • Particularly for illiquid, hard-to-sell assets (art, family businesses, farms), creative use of loans keeps assets in the family.
  • Anne: “You do not want to flood the market all of a sudden with one artist’s works because you have to pay the estate tax. … Loans can kind of give you some leeway to continue keeping that asset within the family.”

Life Insurance & Irrevocable Life Insurance Trusts (ILITs/Iylets)

• Life Insurance as "Ultimate Liquidity" Solution (15:02–18:02)
  • Life insurance can be structured to avoid inclusion in the taxable estate by using an irrevocable life insurance trust (ILIT).
  • Anne: “The most common way to sort of have the life insurance proceeds but also not increase the tax bill is to put it into an irrevocable life insurance trust.” (15:56)
  • Ensure trust terms let funds cover estate expenses.
  • Rachel: “It's not as simple as some people think... follow the rules, you do the steps, file the gift tax returns and keep track of the annual exclusions.” (18:48)
  • Using life insurance and ILITs is more about directionally reducing liquidation needs—not matching tax liability to the dollar.
  • Thomas warns against common myths: “...the first myth that most advisors, especially most insurance salesmen have, is that life insurance is not taxable, but if it’s just in your name, it gets added to what your taxable estate is.” (16:18)

Debate: When to Use ILITs

• Polarizing Views Among Estate Planners (18:02–19:16)
  • Anne: Some recommend “just automatically put their life insurance policy in an ILIT. Why not?”
  • Rachel: “I’m on the spectrum where I do not see why you wouldn’t do an ILIT...as long as you follow the rules.” (18:45)

Term Insurance in ILITs?

• Rare in Practice (20:15–20:32)
  • All agree it’s uncommon to use term insurance within an ILIT; mostly permanent policies are used for this purpose.

5. Practical Considerations for Advisors

• Beneficiary Designations & Asset Review (22:13–22:46)
  • Anne: “The bottom line… take a look at those beneficiary designations with liquidity in mind. It is possible to overly create too many non-probatable assets… [which] pass by operation of law.”
• Preparing for Smooth Transitions (21:50)
  • Advisors should ensure estate plans, trusts, and designations are well-coordinated, enabling efficient and timely access to funds in order to cover liabilities and avoid distress for heirs.

Memorable Quotes & Moments

• On the planning gap:

  “I have people coming in that are 30- to 50-million net worth… they might have some advanced tax strategies, but they don’t even have a regular estate plan set up.”
  — Thomas Kopelman (06:39)

• On forced sales and clawbacks:

  “The two things you want to avoid… [are] having to force the sale of something… [and] to claw back from beneficiaries because they somehow ended up with... the liquid assets.”
  — Anne Rhodes (04:37)

• On the myth of tax-free insurance:

  “The first myth that most advisors… have is that, you know, life insurance is not taxable, but if it’s just in your name… it gets added to what your taxable estate is, and that can lead to estate taxes.”
  — Thomas Kopelman (16:18)

• On ILIT administration:

  “There’s nothing worse than whenever you get a new client, they had an ILIT… and then you have to go back and backtrack to figure out what happened.”
  — Rachel Hartman (18:58)

Important Timestamps

| Topic | Speakers | Timestamp | |---------------------------------------|-------------------|-------------| | Introduction & Guest Background | All | 00:09–01:15 | | Why Liquidity Issues Matter | Anne, Rachel | 02:15–04:37 | | Estate Tax Timeline and Returns | Thomas, Rachel | 05:26–06:30 | | Poor Estate Planning & Probate Locks | Thomas, Anne | 06:30–07:38 | | Strategies: Insurance & Annuities | Anne, Rachel | 07:38–09:53 | | Reviewing Asset Structure | Rachel, Thomas | 09:53–11:04 | | Buy-Sell Agreements | Anne, Thomas | 12:58–14:01 | | Life Insurance and ILITs | Anne, Rachel | 15:02–18:02 | | ILIT Use Debate | Anne, Rachel | 18:02–19:16 | | Term Life in ILIT (rare) | All | 20:15–20:32 | | Practical Advisor Guidance | Thomas, Anne | 21:50–22:46 |

Takeaways for Advisors

• Review all client assets and their liquidity—don’t let everything pass outside the estate without considering tax liabilities.
• For business owners, buy-sell agreements must be current and fully funded.
• Structure life insurance thoughtfully, using ILITs when appropriate, and ensure the administrative details are managed year after year.
• Always coordinate estate, beneficiary, and trust planning for smooth transitions and quick access to liquidity after death.
• Proactive conversations with clients about their post-death expectations and needs (including cultural factors or unique expenses) are essential.

End note:
If you’ve run into exotic liquidity challenges in client estates, Thomas and Anne invite you to share your story for future episodes!