Estate liquidity gap calculator

What the calculator shows

The calculator lines up two things side by side. On one side sits the cash an estate pays out once an owner dies, and on the other sits the cash and liquid investments on hand to cover those payments. The difference between the two is the liquidity gap.

Owners of businesses, real estate and private investments often hold most of their wealth in assets that cannot be turned into cash quickly. The calculator keeps those holdings in view without counting them as money available for bills. A large estate on paper can still run short of cash on the day of settlement.

Six inputs feed the result. They cover cash and liquid investments, business, real estate and private investments, expected estate and inheritance taxes, debts, administration costs as a percent of the total estate, and cash gifts to heirs and charities. Every figure comes from the reader's own numbers, and the tax line uses the result of the federal estimator. The administration percentage begins as a sample figure that the reader replaces with a personal estimate.

How the arithmetic works

The first step adds up the cash paid out. Cash paid out equals taxes plus debts plus administration costs plus cash gifts. Each of the four pieces is a cash demand on the estate.

The second step works out administration costs from the total estate. The total estate is cash and liquid investments plus business, real estate and private investments. Administration costs equal that total multiplied by the administration percent.

The last step subtracts the liquid assets from the cash paid out. Gap equals cash paid out minus liquid assets. A positive result means payouts exceed liquid assets, and a result of zero or below means liquid assets cover the payouts. Illiquid holdings never enter the subtraction, although they do raise the total estate and so the administration costs.

Assumptions and limits

Retirement accounts are left out of liquid assets unless the reader enters them net of income tax.

The calculator does not model installment payment of estate tax under Section 6166.

How to read the result

A positive gap is the amount of cash the estate would be short if every payment came due at once. Closing a shortfall like that usually means selling something, borrowing, or drawing on other sources, and the calculator does not choose among those paths.

A negative gap is a cushion, meaning liquid assets exceed the cash paid out. A larger cushion leaves more room for costs that turn out higher than expected. Because the inputs are estimates, the cushion is only as firm as the underlying estimates.

Comparing the gap with the total estate adds context. The same shortfall weighs differently on a modest estate than on a very large one. Changing one input at a time shows which figure drives the result.

Where owners get surprised

Owners are often surprised by how much of their wealth cannot be turned into cash. A business interest, a building or a stake in a private fund counts toward the total estate yet pays no bills by itself. The gap can look large even for an estate with a comfortable net worth.

Taxes surprise owners through the way they are set. Exclusion amounts, annual exclusions and rates change over time and differ between federal and state systems. The federal estimator result carries into the tax input, and inheritance taxes imposed by a state fall in the same input.

Timing is another surprise. Taxes, debts and costs often come due within a short window, while a business sale or property sale can take far longer to complete. Loans where the owner personally backs the company can also turn company debt into personal debt.

Common questions