The Liquidity Problem
“Show me the money!” We all remember this declaration from the fictitious Arizona Cardinals wide receiver Rod Tidwell (played by Cuba Gooding Jr.) in the movie Jerry Maguire. I spent Friday and Saturday of last week in Salt Lake City and St. George teaching classes to attorneys, accountants, farmers and ranchers about estate planning and succession planning for farms and ranches. Tidwell’s declaration is so appropriate for these planning situations. The over-arching question when planning is so often - where is the money going to come from? Money for taxes, money for retirement, money for a buyout, money for long term care, money for disability. How and when to pay for these events and potential events is always a concern. This is known as the “liquidity problem.” Farms and ranches are notoriously asset rich, but cash poor meaning they lack liquidity. How quickly you can come up with cash when needed is a measure of your liquidity. If you have to wait for land to sell at a fire sale you are not very liquid. This lack of liquidity that often exists in farms and ranches heightens the importance of not only planning, but starting early to ensure the maximum of options.I often describe planning like a funnel. As we move through life and make choices (or fail to make choices – which is really a choice) the future options we have to choose from will narrow. You will get older or sicker and you will have less options and/or more expensive options for life insurance or disability insurance. You continue to make large and sometimes unnecessary purchases of equipment for the sole purpose of eliminating today’s income tax liability, yet make no investment into retirement or other investment accounts to provide liquidity for future anticipated and unanticipated events leaving yourself illiquid and vulnerable.As you head into the last few weeks of 2014, I would encourage to talk with your financial advisor, your accountant, your insurance advisor, maybe even your attorney about how you can start creating liquidity through insurance, investing or otherwise to provide the money that will eventually be necessary to fund your transition. Like I always say, the transition will happen. No one goes on forever. The only real question is whether we have planned and prepared for it.