The national average for these clearance costs has been variously estimated at 6 to 7.2 percent of the gross estate. Whatever the number, for many families this is a significant expense and liquid assets should be available to offset those costs as well. As long as the majority of estates lack sufficient liquidity to pay their settlement costs, solutions are limited. Unhappily, most administrators wind up selling illiquid assets at a steep discount to pay expenses. As a result, the family loses both the asset and the income it should have generated.
Good planning can provide alternatives to the forced sale of assets under unfavorable conditions.
However, time is a big factor in settling many estates. Any transfer tax is due in just nine months and is based on the fair market value at death. By the time appraisals are done and bills are paid, tax time creeps up and the executor starts looking for quick sales to pay this penalty for success. Failing to create an estate plan and revising it as family and economic conditions change set the estate up for problems. Besides the liquidity issues, failing to use approved tax saving strategies and improperly owning and coordinating life insurance are common mistakes.