One of the initial steps to creating an estate plan is to evaluate how much your assets are worth and what debts you owe. The net worth of your estate can help your attorney to decide what level of estate planning you need. This evaluation will also determine if your family will have to pay estate taxes upon your death. Evaluating your net worth regularly can give you an idea of how well your finances are doing over time.
Estimate Your Assets
To determine how much you are worth, gauge the value of your personal belongings, real estate and financial holdings. You can get a basic estimate by guessing, or you may choose to have items appraised. Checking, savings, retirement and investment accounts are easy; you simply need to review your most current statement to find out their current worth.
Determine Your Liabilities
A liability is any debt that you owe and that your estate would have to pay upon your death. This includes car loans, home mortgages, and credit cards. Make a list of all of your debts and determine what the current amount owed is.
Calculate Your Net Worth
To find your net worth, subtract your debts from your assets. This figure can tell you a great deal. For example, if your number is negative, then you owe more money than you are worth. If this is the case, it may be time to reevaluate your spending and see if there is a way to pay off some of your larger debts. Is your net worth large? Your attorney can help you determine ways, such as Trusts, to protect your assets.
Re-Assess Your Net Worth
It is not only important to understand your net worth, you should evaluate it every two or three years to make sure your assets are not loosing value and that your liabilities are shrinking rather than growing. Recalculating your net worth may help you decide when it is time to up-date your estate plan, to eliminate or reduce any estate tax liability.