One of the first things you have to do when you're planning your estate is to figure out your net worth, which will help you determine the value of your estate. While the process seems pretty straight forward at first -- add up all of your assets and deduct all of your debts and liabilities -- it is very easy to make mistakes. Undervaluing or overvaluing assets are among the most common mistakes that people make along with failing to include obscure or unusual assets. Following are a few mistakes that people make when valuing their estate.
Fair Market Value
The value of many assets, such as vehicles and real estate, may increase or decrease over time. For this reason, you should always use the current fair market value for these items. Do not think about how much you paid for the item. Instead, list the value of each item as the amount you would expect to get if you were to sell it now. Always rely on an expert valuation when calculating an asset's worth. For example, only a certified real-estate appraiser can give you an accurate idea of how much your home is worth currently.
Intangible Items
When listing your assets, it's easy to forget about intangible items, such as intellectual property and electronic products. However, all of these add to the value of your estate, and your survivors will have to pay estate taxes for them.
Keep in mind that property that is held jointly remains with the co-owner until their death. While you can add half of the value of these items to your estate, your heirs will not receive any of the money nor will they have to pay any taxes on these items until the joint owner passes away.
Death Payments
Any life insurance payments or death benefits payments that your heirs will receive upon your death are also part of your estate and should be calculated accordingly. Although these items will not have to go through the court-administered probate process, they will be taxed as part of your estate. It should be mentioned, however, that your heirs can deduct certain final expenses from the value of these items before paying taxes on them. Deductible expenses include the funeral, estate administration fees and debt payments.
Estate planning can be tricky, so it's always a good idea to talk to a financial planner, a consultant or an estate lawyer to make sure all your ducks are in a row and accounted for.
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