Estate liquidity, so heirs are not forced to sell
Estates built on a business, real estate or farmland can be worth a great deal and still be short of cash. Estate taxes and expenses come due within months. Life insurance, usually owned by a trust, can supply that cash so the assets you built can stay in the family.
Coordinated with your estate-planning attorney and CPA
Federal and Washington estate tax in 2026
Washington has its own estate tax with a much lower threshold than the federal one, so many Washington families owe state tax even when no federal tax is due.
Why valuable estates run short of cash
The federal estate tax return is due nine months after death. An extension of time to file is available, but it does not extend the time to pay: the tax is still due on the original date, and interest runs on any unpaid balance. Washington's estate tax also applies to estates well below the federal threshold.
When most of an estate is a closely held company, rental property or farmland, the executor may have to borrow, sell assets on a deadline or bring in outside investors. Federal law lets some estates with closely held business interests pay part of the tax in installments if requirements are met, but that still leaves interest, administration costs and debts to handle. Your attorney can tell you whether it would apply.
Life insurance can provide cash at the moment it is needed. Owned correctly, often by an irrevocable life insurance trust, the death benefit itself can be kept out of the taxable estate.
What estate liquidity typically has to cover
Estate taxes
Federal tax above the exclusion and Washington estate tax above its much lower threshold.
Business continuity
Working capital, key-employee retention and lender requirements during the transition.
Debt and guarantees
Mortgages, lines of credit and personal guarantees that may be called at death.
Settlement costs
Legal, accounting, appraisal and executor fees, plus probate costs where they apply.
Equal inheritances
Cash for heirs who are not taking over the business or property, so the one who is does not have to buy them out.
Holding costs
Property taxes, insurance and upkeep on real estate while the estate is settled.
Common ways to structure estate liquidity coverage
Policy owned by an ILIT
An irrevocable life insurance trust owns the policy, so the death benefit is generally kept out of the taxable estate. The trustee can lend to or buy assets from the estate to provide cash.
Survivorship policy for couples
Married couples often defer estate tax to the second death through the marital deduction. A second-to-die policy pays then, when the tax is due.
Coordinated with a buy-sell
For business owners, a funded buy-sell agreement converts the business interest to cash at a set price, and personal coverage handles the rest of the estate.
How an estate liquidity gap appears
Round, illustrative numbers. Actual tax depends on deductions, prior gifts and the law in effect at death.
A Washington owner with a company and rental property
A widowed owner dies in 2026 with an estate of about $12 million: an operating company, two rental buildings and a home. Little of it is cash. No federal estate tax is due, but Washington estate tax is, along with settlement costs and a business line of credit the bank wants addressed.
- Washington estate tax (estimate, before deductions)$1,500,000
- Line of credit paydown$400,000
- Legal, appraisal and settlement costs$200,000
- Working capital during transition$100,000
Illustrative example. Real outcomes depend on the facts and your policy terms.
Planning for estate liquidity
Project the estate and the taxes
With your attorney and CPA, we estimate the estate at death, the federal and Washington tax and the other cash needs, under more than one growth assumption.
Decide who owns the policy
Usually an ILIT drafted by your attorney. A new policy purchased by the trust avoids the three-year rule that applies when an existing policy is transferred.
Choose the policy design
Single-life or survivorship, guaranteed universal life, whole life or another design, depending on how long the coverage must last and how much guarantee you want.
Underwrite and fund
We compare carriers, coordinate medical underwriting and set up premium gifts to the trust.
Review as laws and values change
Estate tax law has changed several times in recent years, including in Washington in 2025 and 2026. We review coverage when the law, your estate or your family changes.
Estate liquidity FAQ
Does Washington really tax estates under the federal exemption?
Is life insurance included in my estate?
Can I move a policy I already own into a trust?
Why not just plan to sell assets?
What if the estate tax rules change again?
Do you prepare the estate plan?
Find out how much liquidity your estate needs
A confidential review with you and your advisors, starting with a projection of what your estate would owe and what it would have on hand.
Content on this page is a general summary for education. It is not tax, legal or investment advice, a statement of coverage, an offer or a binder. Scenarios and dollar figures are illustrative examples, not representations about any person or business. Tax figures reflect 2026 federal and Washington rules as we understand them and can change. Consult your tax advisor and attorney before acting. Policy features, conversion rights and guarantees vary by carrier and contract, are subject to underwriting and the terms of the policy issued, and are backed by the claims-paying ability of the issuing insurer.