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Succession Liquidity

Inheritance Tax

When obligations arrive before liquidity.

A family can own substantial wealth and still face a significant liquidity requirement when succession occurs. One of the clearest examples is Inheritance Tax. The tax treatment of succession depends on several factors, including the jurisdiction involved, the residence or status of the individuals, the location of the assets, and the way those assets are owned.

The issue

The rules can vary substantially from one country to another.

But the financial challenge can be similar. A tax liability may arise at a time when a significant part of the family’s wealth remains invested in companies, investments, property or other assets that cannot necessarily be converted into cash immediately or on appropriate terms.

This creates a timing issue.

The value exists, but the liquidity required to meet the obligation may not be available. Legal and tax arrangements, together with ownership structures, may play an important role in determining how assets are transferred and how taxation may apply. But even sophisticated planning does not automatically create the liquidity required to fund a tax obligation. If sufficient liquidity is not available when it is needed, it may place the family under financial pressure. That pressure may lead to borrowing, refinancing, or the sale of an asset at a time that may not be economically optimal.

The question is therefore not only how much the tax may be.

It is also how that obligation will be funded without requiring the family to make decisions that may affect the value of the wealth being transferred. This is why Inheritance Tax can become a succession liquidity issue. Preparing for the tax is one part of succession planning. Preparing the liquidity to fund it is another.

What this can look like

Illustrative example — not a client case.

A founder’s estate consists mainly of shares in the family company and property in two countries. After the founder’s death, tax obligations fall due within months, while the shares cannot be sold without unsettling the company and the property takes time to value and sell. The family has wealth — but not the cash, in time.

Questions a family may ask

  1. When would tax or estate obligations fall due, and in which countries?
  2. Which assets could realistically be used to meet them, and how quickly?
  3. What would happen to the family business if assets had to be sold under pressure?
  4. Has liquidity for these obligations been planned, or assumed?
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