In Wills & Estates

Understanding the value of assets and liabilities is fundamental in estate law planning. Early assessment of your estate eases decision-making processes to make sure your estate plans align with your family’s needs. 

Failing to assess property during your lifetime can complicate matters after passing. So, to avoid complications, you must determine the value of your assets and liabilities. This inventory clarifies post-death property administration and aids in predicting estate and inheritance taxes. 

In this specific situation, ‘estate lawyers near me’ are trusted legal professionals who can guide you through the ins and outs of the estate law. 

Difference Between Assets and Liabilities 

About Assets 

Assets are your valuable possessions. This includes anything with monetary value to ensure financial stability and growth. They come in two main types: current assets and noncurrent assets. Current assets can be used or converted into cash within the fiscal year, while noncurrent assets are held for longer.

Examples of current assets include:

  • Cash
  • Mutual funds, bonds, or stocks 
  • Prepaid expenses
  • Inventory
  • Marketable securities
  • Accounts receivable

Examples of noncurrent assets include:

  • Long-term investments
  • Land
  • Property
  • Plant
  • Equipment (PP&E)
  • Trademarks

About Liabilities 

Liabilities are debts you owe to various entities, including consumers, partners, or institutions. Like assets, liabilities are divided into two main types: current liabilities and noncurrent liabilities. Current liabilities are debts to be settled within the fiscal year, while noncurrent liabilities are obligations spanning longer periods.

Examples of current liabilities:

  • Accounts payable
  • Short-term bank loans
  • Mortgage loans  

Example of noncurrent liabilities:

  • Bonds payable
  • Deferred tax liabilities
  • Long-term loans

Determining the Value of Assets and Liabilities 

A personal net worth statement, derived from your inventory of assets and liabilities, is a powerful tool for estate planning. There are key steps to determine the value of your assets and liabilities.

Step 1: Know What You Owned and Their Value 

Estate includes all your possessions, including tangible and intangible assets, including real property, personal belongings, financial accounts, and liabilities. Not limited to overt possessions such as residences and monetary assets, it extends to less conspicuous holdings like the valuation of term life insurance policies. In short, its about the entirety your material interests and financial obligations.

Step 2: Know What You Owed and Their Value

Liabilities represent what you owe, often comprising unpaid bills and debts. Short-term debt covers current unpaid bills and balances on loans like installments, car loans, and credit cards, lasting less than five years. Long-term debt involves obligations such as home mortgages and equity loans, taking longer than five years to repay.

Step 3: Organize Your Estate Information 

The hardest step in creating a net worth statement is gathering your financial documents. You’ll require recent statements like:

  • Checking and savings accounts
  • Credit cards
  • Store accounts
  • Loans
  • Investment or brokerage accounts
  • Insurance policy details 

The Financial Information Checklist 

The list below includes common items found in estates. Each item is followed by important details about the asset or liability and its ownership status.

For Insurance 
  • Life insurance: Includes details like the insurance company and policy, policy number, face value, supplemental values, cash value, outstanding policy loan, owner’s name, insured person’s name, and beneficiary.
For Assets 
  • Details of Checking and Savings Accounts: Include institution name, location, account holders’ exact names, account numbers, and title on signature card.
  • Personal Property: Describe motor and recreational vehicles, machinery, livestock, crop inventory, home furnishings, jewelry, art, antiques, and personal items. Provide information on cost, value, ownership, and titling.
  • Trusts: Specify type, location, trustee, creator, beneficiary’s name, and trust value.
  • Notes, Mortgages, and Accounts Receivable: Describe, include acquisition year, value, debtor, and repayment plan.
  • Real Estate: Mention property type, size, location, acquisition year, cost, market value, and title holder’s name.
  • Business Property: Specify buildings, improvements, machinery, equipment, livestock, feed, grain, supplies, and operating capital.
  • Stocks, Bonds, and Securities: Detail description, purchase date, price, owner’s name, and face value.
  • Retirement Plans: List pensions, profit sharing, deferred compensation, IRAs, Social Security, annual benefits for spouses, investment amount, and death benefits.
For Liabilities
  • Mortgages or other real estate loans/debts: Description, creditor name, date due and amount to be paid, individual or joint responsibility, whether insured
  • Liens against personal property (like vehicles or machinery loans): Description, creditor name, date due, amount to be paid, individual or joint responsibility, or insured
  • Other liabilities applicable 

 

Sample Template

Schedules of Assets and Liabilities 

Name: __________________________________ Date: ________________

A. Bank Accounts and Cash
                                                                                          Names 
Description/Account Number Location On Account Owner Value

Step 4: Create Your Net Worth Statement  

After detailing your assets and liabilities, transfer these totals onto the Net Worth Statement, where you’ll summarize the financial status of your estate. 

Below is a template sample from the Chartered Professional Accountants (CPA) Canada: 

Assets 
Cash $40,000
Mutual Funds, Stocks    $10,000
Real Estate (House) $100,000
Automobiles $20,000
Personal Properties  $80,000
Total Assets  $250,000
Liabilities 
Credit Card Balance  $5,000
Mortgage Loan $100,000
Car Loan $10,000
Total Liabilities $115,000
Net Worth 
Total Assets $250,000
Total Liabilities $115,000
Net Worth  $135,000

Calculating Asset and Liability Value: The Accounting Formula  

ASSETS (what you own) – LIABILITIES (what you owe) = NET WORTH (your property and assets’ total value

This accounting formula shows your financial health through three categories: assets, liabilities, and net worth. It helps you understand how much money you have in each area.

Your total assets must equal the sum of total liabilities and net worth. If these numbers don’t match, double-check your calculations for any errors. Accurate reporting is crucial for taxes and potential audits.

Net Worth Statement in Estate Law

A net worth statement is a key element in estate law, as it provides a comprehensive overview of an individual’s financial situation. Here’s how it contributes:

  • Asset Inventory: It shows all assets an individual owns, including real estate, investments, personal property, and financial accounts.
  • Liability Assessment: It outlines all liabilities like mortgages, loans, and debts, giving a clear picture of financial obligations.
  • Estate Planning: Helps in creating effective estate plans by identifying assets to be distributed and liabilities to be settled upon death.
  • Tax Planning: Assists in understanding tax implications on the estate to minimize tax burdens for heirs and beneficiaries.
  • Probate Process: Facilitates the probate process by providing a detailed overview of the estate’s assets and liabilities to the executor or administrator.
  • Asset Protection: Helps safeguard assets and ensure they’re distributed according to the individual’s wishes, minimizing the risk of disputes among heirs.
  • Legal Compliance: Ensures compliance with estate laws and regulations to prevent potential legal issues during the distribution of assets.
  • Evaluation of Estate Value: Provides a basis for determining the overall value of the estate, which is essential for estate tax purposes and probate proceedings.

 

 

Organize Your Estate Today 

Understanding the value of your assets and liabilities contributes to a smooth and successful transition of your estates. By creating a net worth statement, you gain clarity and control over your legacy.

Seeking legal help from trusted ‘estate lawyers near me’ from Sidhu Legal ensures your assets are protected and distributed according to your desires. 

Now, you can navigate the complexity of estate law with reputable law firms like Sidhu Legal. Get help in building a secure and well-defined estate plan that reflects your values and safeguards your loved ones’ futures.

 

Frequently Asked Questions

How liabilities and expenses differ? 

Liabilities and expenses share similarities but have distinct characteristics. The former is documented on the balance sheet, while the latter is recorded on the income statement. Expenses signify the operational costs incurred by an individual, while liabilities involves the obligations and debts a person owes.

What is considered the largest asset in Canada?

According to the Government of Canada Publications, Canadian assets, including stocks, bonds, and primary residences, reached nearly $2.9 trillion. The primary non-financial asset for Canadians was their principal residence, comprising approximately 38% of total assets.

According to Statistics Canada, Canadians had an average of $16 in debts for every $100 in assets. However, certain family types, such as lone-parent families predominantly led by women, experienced a much higher debt burden.

Is the balance sheet the same as the net worth statement? 

The balance sheet and net worth statement serve similar purposes but differ slightly. A balance sheet presents assets, liabilities, and equity at a specific point in time, commonly used in financial reporting. 

In contrast, a net worth statement lists assets, liabilities, and net worth, focusing on personal financial planning and management. Both provide insights into an individual’s financial position, which aids in decision-making and financial assessment.

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wills and estate law