Estate liquidity forecaster
Will your executor have enough liquid cash to pay taxes, funeral costs, debts, and probate before distributing your estate? Enter your numbers and find out. Useful for spotting liquidity gaps that would otherwise force time-pressured asset sales.
- Funeral: $8,000
- Debts: $15,000
- Final-return tax: $262,297
- Probate: $17,625
- Executor: $58,750
Estate has $186,672 less liquid cash than estimated immediate obligations. Executor will likely need to sell illiquid assets (real estate, business interests, personal property) to raise cash — often under time pressure, at lower prices.
Common planning fixes: add a term life insurance policy naming the estate as beneficiary (provides immediate liquidity at modest premium cost); restructure registered accounts to spousal rollover where possible (defers tax); accelerate disposition of high-built-in-gain assets during life with proper tax planning.
Figures shown are approximate, calculated from current publicly-available statutes and standard formulas. Final amounts depend on your specific circumstances — assets in your name versus jointly held, beneficiary designations, debts, province-specific exemptions, and applicable tax credits. For numbers you can act on, a Canadian accountant or licenced estate planner can verify against your actual situation.
Frequently asked questions
Why does estate liquidity matter?
An estate's executor needs to pay taxes, funeral costs, debts, and other obligations before distributing any inheritances to beneficiaries. If the estate's liquid assets (cash, investments, life insurance proceeds) don't cover those obligations, the executor has to sell illiquid assets — real estate, business interests, personal property — under time pressure. Forced sales typically realize less than market value, so a liquidity deficit can shrink the family's inheritance materially.
What's a healthy liquidity ratio?
We treat a ratio of 1.5× or above as 'healthy' — comfortable buffer for unexpected costs. Between 1.0× and 1.5× is 'tight' — meets obligations but leaves no margin. Below 1.0× is a 'deficit' — the executor will need to sell illiquid assets or borrow against them to meet obligations.
How do I improve a liquidity deficit?
Common fixes: add a term life insurance policy with the estate as beneficiary (immediate liquid cash at death), restructure registered accounts to spousal rollover (defers RRSP/RRIF tax inclusion), accelerate disposition of high-built-in-gain assets during life with proper tax planning, or hold a portion of the estate in liquid form rather than illiquid investments.
Are RRSPs counted as liquid?
We count RRSPs/RRIFs as illiquid because at death they're fully included as income on the final tax return — converting them to cash means paying tax first. The portion that flows to a surviving spouse via beneficiary designation or successor annuitant designation doesn't hit the estate's liquidity at all; what's left in the estate adds tax burden without adding cash.
What about life insurance with a named beneficiary?
Life insurance with a NAMED beneficiary (e.g., directly to a spouse or child) flows outside the estate and isn't available for executor obligations. Only life insurance naming the ESTATE as beneficiary adds to liquid cash for executor purposes. This is why some estate plans deliberately name the estate as life-insurance beneficiary — to ensure liquidity even at the cost of probate-fee exposure.
How accurate is the capital gains estimate?
Approximate. We assume the standard 50% inclusion rate and apply your province's approximate top marginal rate. Actual final-return tax depends on the type of asset (principal residence is exempt; qualified small business shares may use the Lifetime Capital Gains Exemption; spousal rollover defers tax entirely). For accurate forecasting on substantial estates, a Canadian accountant should run the actual tax projection.