Estate planning is not just about who inherits your assets; it’s also about how easily those assets can be converted into cash to settle debts, taxes, executor’s fees, and day-to-day expenses while your estate is being wound up. This ability to pay inevitable costs quickly, without forced sales or family arguments, is called estate liquidity. In South Africa, inadequate liquidity is one of the biggest hurdles to smooth estate administration: Sanlam estimates that nearly half of local estates lack enough cash to cover administration costs at death. The result can be delays, distressed asset sales, and unnecessary financial stress for loved ones.
This article unpacks what estate liquidity is, why it matters, the factors that influence it, and practical steps you can take to ensure your estate is liquid enough to meet all obligations, leaving the maximum possible legacy to your beneficiaries.
What is Estate Liquidity?
Estate liquidity is the pool of cash or assets that can be converted to cash quickly and at fair value available inside your deceased estate. Liquid assets typically include:
- Cash in bank and money-market accounts
- Listed shares and unit trusts
- Short-term deposits maturing within 30 days
- Insurance policy proceeds paid to the estate
Fixed assets are those that take time, cost, or effort to sell:
- Fixed property (homes, farms, commercial buildings)
- Private company shares or business interests
- Collectables, jewellery, vehicles, and personal effects
- Long-term investments that incur exit penalties
An executor needs ready cash to pay funeral expenses, Masters’ fees, executor remuneration (up to 3.5 % of gross assets), transfer costs, outstanding bonds, SARS assessments (CGT, income tax, estate duty), and ongoing maintenance of assets such as rates and levies. If liquidity is insufficient, assets must be sold—often under time pressure and below market value—to raise cash.
What Influences Estate Liquidity?
a) Asset Mix
A property-heavy portfolio may look wealthy on paper, but it can be cash-starved. Conversely, diversified holdings with a healthy allocation to cash and listed investments enhance liquidity.
b) Debt Profile
Large home loans, vehicle finance, or sureties reduce net liquidity because the estate must settle them, either in cash or by selling the encumbered assets.
c) Life Insurance Structure
Policies that pay directly to the estate boost liquidity instantly. But policies that list individual beneficiaries bypass the estate, leaving a liquidity gap unless separate funding is in place.
d) Estate Taxes and Costs
- Estate duty (20 % on dutiable value above R3.5 million, 25 % above R30 million)
- Capital gains tax is triggered on deemed disposals at death
- VAT or transfer duty on property transfers (where applicable)
High-value estates with significant growth pay larger SARS bills and therefore need deeper liquidity reserves.
e) Beneficiary Needs
Minor children, financially dependent spouses, or special-needs beneficiaries may require immediate maintenance, school fees, or medical costs from the estate. Cash must be available quickly or paid from a testamentary trust.
Consequences of Poor Estate Liquidity
- Distressed Sale of Assets: Executors may be forced to sell the family home or business at a discount just to pay debts.
- Delayed Transfer to Heirs: Without cash, winding-up drags on for months or years.
- Family Conflict: Heirs disagree over which assets to liquidate or who should inject money.
- Tax Penalties: Late payment of SARS assessments attracts interest and penalties, eroding the estate further.
Olemera Financial Services warns that without deliberate liquidity planning, even well-intentioned Wills can burden heirs with debts and taxes they never saw coming.
Estate-Liquidity Planning: Key Considerations
1. Accurate Cash-Flow Forecast
Work with a fiduciary adviser to project estate expenses: executor fees, rates clearance, transfer costs, SARS liabilities, maintenance of dependents, and any loan settlements.
2. Life-Insurance Gap Analysis
Calculate whether existing life-cover payouts to the estate will plug liquidity gaps. If policies are directed to private beneficiaries, consider an additional “estate duty” policy payable to the estate.
3. Balance Liquid vs Illiquid Assets
Maintain an emergency fund or a portfolio of short-dated investments (money-market, income funds) within your estate. ASL’s estate specialists note that having liquid assets equal to at least 10 %–15 % of gross estate value is a practical rule of thumb.
4. Reduce or Restructure Debt
Pay down high-interest debt or ensure credit life cover settles it on death. For business owners, separate personal sureties from company liabilities where possible.
5. Use Trusts and Buy-and-Sell Agreements
Placing growth assets in an inter vivos trust can reduce estate duty and liquidity pressure. In family businesses, funded buy-and-sell agreements create cash for the estate when a shareholder dies.
6. Regular Will Reviews
Update your Will after major life events (marriage, divorce, asset purchases) to ensure liquidity plans still match your estate’s shape.
Practical Strategies to Boost Estate Liquidity
- Estate-Duty Policy: A dedicated policy calculated to cover executor fees, estate duty, and CGT, payable to the estate or a testamentary trust.
- Policy Cession to Trust: Cede a life policy to a family trust to provide immediate cash for beneficiaries, bypassing estate delays.
- Feeder Fund: Set up a sinking fund (unit-trust or money-market) earmarked for estate costs.
- Bond Protection: Take bond-protection cover to settle outstanding home loans, freeing property to transfer debt-free to heirs.
- Short-Term Liquidity Reserve: Keep a percentage of your investment portfolio in low-risk instruments with T+2 settlement times.
Estate Liquidity and Professional Support
Determining the correct level of liquidity is complex—too little, and heirs are forced to sell; too much, and you miss out on potentially higher-return investments during your lifetime. A skilled fiduciary planner, like Crest Trust, will:
- Model estate-duty and CGT scenarios
- Quantify executor fees and other cash needs
- Design insurance and investment solutions to plug gaps
- Coordinate with attorneys, accountants, and financial advisers to keep the plan updated
Conclusion
Estate liquidity is the lubricant that keeps the gears of estate administration turning smoothly. By forecasting cash needs accurately, balancing your asset mix, and structuring smart insurance and investment buffers, you can spare your heirs the distress of fire-sales and long delays.
Crest Trust specialises in liquidity modelling and bespoke estate-planning strategies tailored to South African tax law. Contact our fiduciary team today to ensure your estate is liquid, compliant, and ready to deliver on your legacy.
FAQs
What is the liquidity of an estate?
It is the readily available cash—or assets easily convertible to cash—within a deceased estate to cover debts, taxes, administration fees, and beneficiary needs without selling key assets under pressure.
What does liquidity mean in real estate?
In property terms, liquidity refers to how quickly and efficiently a property can be sold for fair value. Real estate is usually illiquid because it takes time to market, sell, and transfer ownership.
What is the best way to liquidate an estate?
Advance planning is best: maintain liquid investments, hold appropriate life insurance payable to the estate, and ensure the executor can access bank accounts or short-term deposits to settle costs. Forced post-death sales should be the last resort.
Why is liquidity an issue for a large estate?
Large estates often hold high-value, illiquid assets—farmland, private companies, art collections—while estate duty, CGT, and executor fees rise in proportion to asset value. Without liquid reserves, the estate may have to offload prized assets cheaply just to meet tax and debt obligations.