To create a coherent estate plan, you must first estimate your net worth. How much work you should put into the estimate will depend on the following factors:   

• If you know your estate is large, use as much precision as possible.

• If you know your estate is too small for estate taxes, but own assets that will earn income after your death, use as much precision as possible. (Refer to the article Tips to Minimize the Estate Income Tax to plan accordingly in this scenario.)

• If you know your estate is small with few assets that will earn income after death, a ballpark figure will do.

Basically, estimate your net worth as precisely as possible anytime tax planning is a concern in your estate plan. This will allow you to plan for tax avoidance properly and prevent any awkward surprises for your executor.

How to Estimate Your Net Worth

Estimating your net worth isn’t a difficult process, but it may be tedious depending on the size of your estate. Regardless, you start the process by taking an inventory of your property, which includes your liabilities. Taking inventory of your property yields the following benefits to your estate plan:

• Reveal everything you own.

• Reveal everything you owe.

• Give you an estimate of the estate’s current net value to help you in estate tax planning.

• Determine assets that will produce income after death to help you with estate income tax planning.

• Identify shared ownership of property.

• Create a list to refer to when leaving gifts to beneficiaries in a will or living trust.

• Provide your executor with a list of assets and liabilities upon your demise.

• Have your assets organized if you decide to consult an estate attorney.

Once you finish the inventory of your property, including your liabilities, you can calculate your estimated net worth by subtracting the liabilities from the assets. At this point, by estimating your net worth, you have built a solid foundation to a coherent estate plan that your executor and beneficiaries will appreciate.

Conclusion

Since knowing your net worth at death is impossible, any net worth calculation done today is only an estimate of your net worth in the future. So, if you need precision in estimating your net worth, you should keep the estimate updated at least once a year. Also, in addition to changes in your life, keeping your net worth updated will help you identify the need to change your existing estate plan in the future.

To make the process easy, start using software to track your estate. Instead of writing down your inventory, input the inventory into personal finance management software such as Quicken. The software today allows you to download current transactions and balances from the institutions to your accounts set up in the program. So, use automation to keep your estate updated and make life easier for your executor and beneficiaries.

Recommended Reading

Plan Your Estate– Plan Your Estate goes into more detail on how to estimate net worth to build a solid estate plan. The book also includes a copy of the free Property Worksheet.

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