My son is very into puzzles these days.
But as a young child, he sometimes forgets the most basic step: dumping out the pieces.
He likes to look at the pretty picture on the front of the box, and he’ll get so excited that he jumps right into trying to fit pieces together. He’ll grab at them, willy-nilly–not even taking the time to get them all spread out and right-side-up.
“Buddy,” I stress. “It’ll be a lot easier if you can see all the pieces!”
That’s sometimes how people approach charitable giving and legacy planning. They have a general sense of the “picture” they’re trying to create–what’s on the box of the generic “legacy plan” they have in their head–but they don’t take a step back to understand the unique pieces they have to work with first.
That’s why one of the first things we cover in our personal legacy planning program is helping people estimate and understand their estate.
What is Your Net Worth?
At its most basic, your net worth is your total assets minus the debt you owe. When we work with someone to create a legacy plan, we take what we call an “estate snapshot”: a rough picture of where their total estate value falls right now. That number will definitely change throughout the remainder of their life–depending on their spending, health and longevity, market growth, and changes in income–but it helps to get a sense of the general size of someone’s estate. We figure out how big their box is, if you will.
Assets – Debt = Net Worth
If you want to go through the exercise for yourself right now, grab a sheet of paper and start making a list.
On one side, list out all your assets and their approximate values. Be sure to include:
- Real estate
- Cash/savings
- Retirement & investment accounts
- Life insurance
- Vehicles
- Business ownership
- Stock
- Jewelry
- Antiques, collectibles, tools, instruments, and other items of value
On the other side, list out any debts you have. This would include things like:
- Mortgage balance (include home equity line of credit, if applicable)
- Personal loans and IOUs
- Auto loans
- School loans
- Credit card debt
Take the total of your assets, minus the total of the liabilities, and you’ll have your approximate net worth.
Will Your Estate Change Significantly?
Make a note of any items that are likely to change significantly down the road.
- Do you plan to downsize, sell, or buy property?
- Will you sell business ownership or stock?
- Do you have term life insurance that will lose its value after you hit a certain age?
- Do you anticipate inheriting money from a loved one down the road?
- If you need long-term care, what costs will that incur? Do you have long-term care insurance to cover those costs?
These events may be good to keep in mind, because they will change your estate value–and may also change your federal and/or state tax status. These events could also provide great opportunities to make strategic charitable or family gifting decisions that lessen the tax that could be triggered at those times.
Getting these things on paper is an essential step toward understanding your estate and planning for what will happen to your unique assets down the road.