One important step to take early in the estate planning process is determining what your overall net worth is. This will help you determine what assets you may want to pass on, what debts may need to be settled by your estate, how much estate tax your estate may be liable for and what estate planning tools may best fit your situation.
In general, your net worth is the value of everything you own minus the value of everything you owe. The best way to calculate your net worth is to make two lists. One list should include all your assets, while the other should include all your debts. If you are married, you may consider giving your asset and liability lists three columns: one for you, one for your spouse and one for shared items..
One common mistake people make when determining their net worth is forgetting some of their assets or liabilities. You will need to include all this information for an accurate calculation. Liabilities should include the value of debts, such as your credit card balance, mortgage and car loan, along with any other loans or debts you may have.
Assets should include the value of:
- Bank accounts
- Investment accounts
- Stocks and bonds
- Retirement accounts
- Life insurance
- Personal effects
- Real estate
- Business interests
- Money owed to you
- Oil, gas or mineral rights
Once you have added the values of all your liabilities together and added the values of all your assets together, you can subtract the liabilities from the assets to get your total net worth. If you are married and listed assets and liabilities in multiple columns, you will be able to calculate the net worth of you and your spouse combined, as well as you each individually.
It can sometimes be a time-consuming process to track down the value of your assets and liabilities. However, with an accurate understanding of your net-worth, you will be able to make the best estate planning decisions for your personal situation.