A family business, an illiquid estate, and a tax bill due in cash

Part of our guide: Estate planning for illiquid estates →

The situation

The H family (hypothetical) built a regional distribution business over three decades. Married couple in their late sixties. Their balance sheet, on paper, looks like this: an operating company appraised near $30 million, the commercial building it runs out of at about $9 million, a parcel of undeveloped land held for years at roughly $2 million, and about $1 million spread across retirement and brokerage accounts. Call it $42 million.

Almost none of it is cash. The wealth is the business and the dirt. Their estate attorney had the wills and a revocable trust in good order. What no one had priced was what happens to that structure the day after the second of them dies.

Finding one: the estate is above the line, and the bill comes due in cash

Against a $30 million combined exemption, roughly $12 million of the estate sits above the line. At the flat 40% federal rate that applies at these levels, that is about $4.8 million of federal estate tax. Because they are Florida residents, there is no state estate tax to add — Florida imposes none, so the federal figure is the whole bill. And it is due, in cash, roughly nine months after death.

The exact figure depends on valuation, prior gifts, discounts, and deductions that are the CPA's and attorney's to determine. But the shape does not change: a multi-million-dollar cash obligation, landing on an estate whose value is locked in things that do not sell in nine months without a discount.

Finding two: the trap is the forced sale

When the cash isn't there, the asset becomes the cash. The heirs sell the building, or a piece of the company, or the land — quickly, and therefore at a discount — to pay a tax assessed on the very thing they were trying to keep. The forced sale of a sound family business to satisfy the IRS is a recurring story, and it is almost always avoidable with planning that starts before it's needed.

The tools, in order: shrink, then fund

There are two moves, and the order matters.

First, shrink the estate where it makes sense. Lifetime gifting and irrevocable trusts can move value — and future growth — out of the taxable estate, lowering the number the 40% is figured on. That is the attorney's and CPA's work; the legacy and estate strategies that do it sit squarely in their lane, not ours. One common version of this is the choice between an ILIT and a spousal lifetime access trust, which moves assets out of the estate while keeping some indirect access — the mirror image of the funding question on this page. Every dollar removed here is a dollar the funding step doesn't have to cover.

Then fund what remains. This is the job life insurance is actually built for in an estate: deliver tax-free cash at the exact moment the tax is due, so nothing has to be sold to raise it. For a married couple it fits especially cleanly. The unlimited marital deduction generally defers the tax to the second death, and a survivorship (second-to-die) policy is designed to pay at precisely that moment — typically at a lower premium than two single-life policies, because it insures the second death rather than the first.

The one structural point that decides whether it works

A funded plan can still fail on a single ownership decision. If the insured owns the policy, the death benefit is pulled back into the taxable estate — so the coverage meant to pay the tax ends up partly taxed itself, and the family is short again. Owned instead by an irrevocable trust, the benefit lands outside the estate and covers the bill in full.

The honest alternative, named for comparison

One non-insurance path deserves naming so the comparison is fair. A closely held business estate can sometimes elect to pay the estate tax in installments over a number of years rather than all at once. It genuinely helps with timing. But it carries interest, it can place a lien on the business, and it comes with conditions the business has to keep meeting for years. It manages the bill. It does not create the cash — the money still comes out of the business's own future earnings.

These are not mutually exclusive, and which combination fits is a planning decision for the CPA and attorney. The point of naming both is that only one of them puts new cash on the table.

What the client receives

Every engagement produces a written analysis memo: the projected liability, the liquidity gap above, carrier-agnostic design specifications for the coverage that fills it, and the explicit demarcation of what belongs to the attorney and CPA versus what we handle. Carrier selection happens afterward, compared on the merits. The memo is the deliverable; the policy is its implementation.

Why we publish worked examples instead of testimonials

You can't evaluate an advisor by adjectives. You can evaluate one by reasoning. This page shows the reasoning — the same process, applied to your facts and coordinated with your existing attorney and CPA, is what an engagement looks like.

This scenario is hypothetical and for educational purposes only. All figures are illustrative and will differ based on valuation, applicable exemptions, and individual circumstances. The estate-tax exemption and rates are set by federal law and change over time; confirm current figures with your CPA. Insurance products are subject to underwriting approval. Estate planning, trust drafting, and tax determinations are the work of your attorney and CPA; LogicPoint Advisors does not provide legal or tax advice and does not draft trusts. Cosmin Mandachescu · FL 2-15 License #G335891.