5 Steps To Accurately Value Your Estate For Planning
If you plan to leave your estate to more than one person, you first need to understand its true value. Valuing the estate as a whole and its individual components is the only way to ensure that you divide it in a way that fulfills your intentions. To help you accomplish this, here are five important steps to undertake.
1. Gather Financial Documentation
Start with the easiest part of valuing an estate: accounts and liquid assets. Bank accounts, retirement funds, and investments like stocks or bonds all have easily identifiable values provided in statements. Don't stress over the fact that these accounts change in value daily. It will be close enough for planning purposes.
2. Value Hard Assets
Valuing hard assets is more difficult but sometimes more important. Work with professional appraisers, real estate agents, or industry experts to figure out the current market value of things like your home, car, jewelry, artwork, heirlooms, and collectibles. Having independent evaluations of sale value is key because it's hard to separate emotion or bias from one's personal valuation.
3. Understand Your Liabilities
Your estate isn't just its assets. The estate must also pay any liabilities you owe before heirs receive anything. As such, you cannot do any proper estate calculations if you don't account for debts that could drain it. Since debts are generally paid from the estate's liquid cash, this will affect accounts' values before it affects hard assets' values.
4. Learn About Tax Effects
How will your estate and heirs be impacted by taxes? Because taxes — including estate taxes, inheritance taxes, tax basis, and capital gains — can be very complicated, you do well to work with your accountant to understand the details. Smaller estates may have few immediate tax effects, but you also need to know how heirs will be affected when they sell assets later in order to divide them fairly.
5. Subtract Deductions
Finally, you'll need to determine what your wishes are and divide them up into two main categories. First is what will be transferred to your spouse. Spousal transfers happen first and are deducted from the value of the estate for everyone else. From there, decide how much you're giving to charity. Any charitable donations also reduce the remaining value to be divided among heirs.
The job of accurately valuing your estate is important. As such, an accountant is the best resource you can get. They will work with you to come up with a correct, impartial, and useful valuation. Make an appointment today to get started.