Your Family's Financial Inventory

One of the first steps in putting together an estate plan is to understand what you own, and the best way to do that is to make a financial inventory. Doing so will prompt you to gather together all the information that you'll need to complete your estate plan. Without this type of 'pre-organization,' it may take a family months or even years to fully comprehend what a deceased person left behind. You don't want your loved ones to have to sort through your messy desk, your unopened mail, and all of those dusty boxes in the garage just to figure out where your bank accounts, safe deposit box, retirement assets, and life insurance policies are. An inventory will make it much easier to settle your affairs and transfer assets to the people you desire to have them. Furthermore, having a list will prevent your family from missing out on inheriting assets because no one knew that they existed.

As you start identifying and valuing your assets, don't be overly concerned with exact financial figures. The inventory is simply meant to try to place an approximate value on your assets so that you can reasonably determine how much would be left behind for your heirs should you die unexpectedly. Generally, it's just a basic list of what you own and how you own it, where it is, how much it's worth, and how to access it electronically.

Cash

It's usually easiest to tally up cash, so begin there. For the purpose of your inventory, checking accounts, savings accounts,, and certificates of deposit should all be considered as cash assets. Identify every bank account that your family has, where they're located, whose name or names are on the statements, and how much is in them. Be sure to also write down any electronic access information, such as an account name and password. Without that critical information, it might be very difficult for your family members to gain access to the accounts.

Custodial accounts and college savings plans

Bank and investment accounts that hold money or stock for the benefit of your children are known as custodial accounts. The child is the legal account owner, but until he or she reaches a certain age (21 in most states), an adult must serve as the account's custodian and is the only person officially allowed to invest and spend the assets in the account. When the child reaches the required age, he or she can then spend the money without adult supervision or control.

You can tell by looking at a brokerage or bank statement whether or not an account is custodial, as they typically include wording such as "for the benefit of (your child's name)" or the abbreviation "UTMA" or "UGMA" after the child's name. Those letters stand for the laws that authorize custodial accounts, the Uniform Transfers to Minors Act and the Uniform Gifts to Minors Act, respectively. You'll also see the name of the account's custodian at the top of the statement.

Like custodial accounts, any money that you've placed in a tax-deferred college savings plan can be used for the benefit of your children, so list it on your inventory. Two kinds of tax-advantaged plans are available. The first, known as a 529 plan (after the section of the tax code that creates it), is an investment account that permits a family to save for their children's college- and graduate school expenses. Every state offers a 529 college savings plan, and you can invest in any state's plan, even if you don't live there. (The states' plans differ in investment options and performance, and some states offer in-state residents an additional tax advantage for investing in their home state's plan.) Some states also offer a 529 prepaid tuition plan. These plans allow parents to lock in future tuition of certain colleges and universities at then-current prices. The second tax-advantaged, the Coverdell Education Savings Account (which used to be called the Education IRA), is limited to $2,000 annual contributions at the present time.

Safe deposit boxes

If you have a safe deposit box, be sure to write down where it is and where the key is. Also, if you're going to store your important documents in the box, know that in some states it can take several weeks for an estate's executor or trustee to gain access to the box after the owner's death.

Real estate

If you own real estate, you need to understand how you legally own it – in other words, the way you hold title to it. This is important because if you own the home with others, the form of title will affect who would own it upon your death. The pertinent information will be on the grant deed that transferred legal ownership of your house from the former owner to you.

Retirement accounts and other investments

Start here by gathering all of the investment and retirement statements that you can find into one pile. Then sort that pile into two groups: one for your traditional- and Roth IRAs, 401(k)s, 403(b)s and annuities; and the other for everything else.

As you'll notice, the first pile is made up of statements for all of your retirement accounts. They're sorted together in their own separate pile because these accounts all have beneficiaries you've named on record with the plan administrator or investment manager. Those beneficiaries will receive any money left in the particular plans when you die – you won't deal with retirement assets in your will or trust. If you change your mind and want to leave those assets to a different person, you must update the beneficiary designations with the companies directly, using a Change of Beneficiary Form provided by them.

The second pile that you've got in front of you is made up of all of your other investments. These might be brokerage accounts that contain stocks, bonds or mutual funds, or securities that you've purchased directly. Depending upon how you own these investment accounts, you may leave them through your will or trust, or they may pass automatically to a joint owner. For example, if you and your spouse own them as joint tenants, the surviving spouse will automatically own the whole account when the first spouse dies. Alternatively, you can execute a form with the company that holds the accounts to make them "payable on death" or "transfer on death" accounts, which means that like retirement accounts with named beneficiaries, they'll pass directly to the person you've designated.

Now take a closer look at the account statements in each pile. Look at the person to whom the statement is addressed to see who's listed as the account's legal owner. If it's addressed to both members of a couple, they're both on record as the legal owners. If only one member is listed, that person is the legal owner of the account. In community property states, however, the spouse might own some of the account, regardless of if it's just in one name. These issues can get somewhat complicated, but remember that for the purpose at hand right now, the most important thing is simply to total up all the family's assets in order to see what would be left to your kids if both you and your spouse weren't around.

Next, look for any abbreviations after the names on the statements. If you've designated a beneficiary for these accounts, it will usually be listed at the top of the statement, sometimes with an abbreviation "FBO" (for the benefit of). If you haven't designated a beneficiary for an investment, look for "JTWROS" along with the account owners' names at the top of the statement. That means that you own the account as a joint tenant with right of survival with the listed person. Of course, if you own an account singly, you'll see one just name at the top. In such a case, you can leave it to whomever you choose through your will or a trust (unless, again, you live in a community property state, in which case your spouse will likely own some portion of the account).

Life insurance

Life insurance is an important part of every family's estate plan. Often, the proceeds from a policy are the major source of immediate cash for a surviving spouse or young children. You'll need to know what policies are owned, how much each would pay upon the death of the insured person, and who the beneficiaries are for each policy. During your lifetime the value of your life insurance is minimal – the crucial thing here is the face value of the policy; in other words, the amount that it would pay out upon your death.

The first place to look for insurance coverage is at work. Your employer might offer you group life insurance that will pay a set amount or some multiple of your annual salary. Sometimes, you can also buy additional coverage through such plans. Therefore, you need to know what your employer offers as basic coverage, as well as whether you've purchased any supplemental amounts. It could be a bit difficult to track down the name of the actual current insurer from your Human Resources department, especially if you're employed by one of the larger companies (where the plan providers can change rather often). But all group life insurance policies are identified by a group certificate number, so annotate that and the amount of your coverage if you can't get anything else. Your employer may also have purchased an accidental death policy, which will pay your family an additional amount if you die as a result of an accident. If so, list the group certificate number for this policy as well.

If you've bought other life insurance outside of work, you should have a copy of the policy filed somewhere. Again, record what kind of life insurance policy it is, how much it will pay upon your death, and who you've named as beneficiaries. If you can't find your policy, look on your premium bill (it may come monthly, quarterly, or annually) to find the policy number. Once you've found the policy number, you can either go online or contact the insurance company directly to find out exactly what you own. If you can't find your policy or a current bill but you know the name of the insurance company, call them to get your policy number and particulars.

Additionally, credit card companies or banks sometimes offer relatively small insurance policies to their card or account holders. For example, you might get a $10,000 accidental death policy when you open a checking account or are approved for a new credit card. Be sure to include these on your inventory as well.

Pensions

You might have a pension plan through a company or a government agency that you've worked for or a union you belong to, also known as a defined-benefit plan. Some pensions will end upon the death of the member, but others may pay survivor benefits to a spouse or children. Find out which type you have and how much it would be worth to your family if you died. You'll also need to include how your family should contact the plan administrator.

Annuities

Annuities are similar to life insurance policies. You sign a contract with a company in which you agree to deposit a certain amount of money (whether lump sum or over time), and they promise to pay that money back to you over a certain period. Sometimes the annuity pays a benefit to survivors, sometimes not; again, check with the issuing company to find out whether or not yours pays survivor benefits.

Government benefits

If you or your spouse is entitled to any veteran's-, disability- or other government benefits, be sure to make note of them.

Automobiles and personal property

The cars you own, as well as your furniture, jewelry, and other personal items, are likely to change over time more than anything else on your financial inventory. List only those items that are either worth a significant amount or that mean a lot to you.

 

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