Calculating estate valuation

Posted by Angela Holliday Hansen Esq. | Oct 01, 2014 | 0 Comments

While some people in Maryland avoid estate planning, it is really an important facet of life that should be addressed. One of the first steps to take in making one's estate plan is evaluating how much one's estate is worth.

First is to calculate one's net worth. Net worth refers to the amount one's assets are worth minus the amount of one's debts. Assets include not only tangible property, but also bank accounts, investments and trust distributions, among other things. Liabilities consist of items such as mortgages, credit card debt and student loans. The extent to which the amount of one's assets exceeds the amount of one's debts is one's net worth.

After determining what one's net worth is, one must determine how much of that portfolio they need during their lifetime. First, one should determine how much they spend monthly or annually. This includes not only basic necessities such as clothing, housing and food, but also additional expenses such as entertainment, vacations and home maintenance needs. One's spending portfolio is worth the amount of their spending expenses minus the amount of their income. Income includes not only paychecks, but also money stemming from investments, retirement accounts, Social Security benefits and pensions, among other sources of finances.

The next step is to calculate how much of their portfolio they have to spend, which is referred to as the person's required base. To do this, one can divide the amount of their spending portfolio by their sustainable spending rate, which is the amount of money they can take out of their portfolio annually without taking away from the value of the portfolio.

With these numbers, one can finally determine how much money they can include in their estate plan without diminishing their quality of life. One may have an asset surplus if their required base is exceeded by their net worth. Or, one may have an income surplus if their yearly income minus taxes exceeds their yearly spending.

Estate valuation is very important. After all, one cannot give away what one does not have. However, estate valuation can be complicated. It may be worthwhile in these situations to consult with an attorney who can help with the estate valuation and planning process.

About the Author

Angela Holliday Hansen Esq.

Angela Holliday Hansen, Esq., is a former big firm corporate attorney who now practices family law in Rockville Maryland. Ms. Hansen oversees complex estate administration and drafts...

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100 Park Avenue
Suite 106

Rockville, MD 20850
301-517-5729
Mon, Tue, Wed, Thu, Fri: 09:00am - 05:00pm

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