When an estate is being settled in Alabama, it will take six months or longer before the assets in the probate estate can be distributed.  I frequently advise people to plan for this and to designate a bank account jointly titled to themselves and the person they have named to be the personal representative (aka executor) of their will so that funds will be available for any immediate cash needs.  Another source of cash may be life insurance with the beneficiary designated as the person who will be responsible for the estate.

Historically, one main reason to buy life insurance as part of an estate plan was to have cash available to pay estate taxes. Now that the estate tax exemption is so large (in 2016, estates can exempt $5.45 million per individual from taxation), most estates don’t pay federal estate taxes.  If someone dies in Alabama with less than the $5,450,000 exemption amount, his or her estate will not owe federal estate tax, and there is no Alabama estate tax. The heirs and beneficiaries will inherit the property free of tax as it relates to the federal government and Alabama (but they may owe estate tax in another state). So the use of life insurance for estate tax reasons is greatly diminished, however, life insurance can still be helpful in a number of other ways.

Life insurance provides cash to use for the payment of home expenses for property held in the probate estate (such as utilities, mortgage payments, maintenance, insurance, property tax), debt, burial fees, or estate administration fees and expenses, replacement of income or assets lost to pay for long-term care, funds for a trust for a minor child or a child with special needs, buying out a business interest, funding charity, or balancing the interests between heirs to non-probate property (e.g. if one child is inheriting a certificate of deposit, a life insurance policy can ensure that the other child receives the same amount).

It is important to think through the property you own and determine what will be part of your probate estate and what will fall outside the probate estate and plan for enough liquidity to make the settling of your estate manageable for those charged with that responsibility.