Step Two: Organize Your Assets
It is important to keep the information about your property and the debts you owe current. If you are organized, you will be able to have a plan in place that is ready for your family immediately following your death. You may be able to save money now as well as save time and money for your family in the future. In addition, you will relieve the family from having to make decisions after your death.
Chapter 2 recommended that you develop a system to organize the information about your property. In your three-ring binder or notebook, you should have a separate piece of paper for each asset you own, whether real estate or personal property such as an automobile. Each property should include information such as the value of the property, what you paid for it, the cost of any improvements you made, the debt against the property, and how it is owned.
You should think about each asset you own from two perspectives: whether you are currently making the best choices about that asset, and what would happen to that asset if you were gone.
When you organize the information and keep it up-to-date, it will help you make the best choices while you are alive. It will also allow you to evaluate all of your property together and to have a plan in place for your family to follow. It's best to mark your calendar for an annual review of your notebook contents and your overall plan.
Evaluating the Information Gathered
Evaluating the information about each piece of property you own can reap tremendous benefits for you now as well as after you are gone. For example, assume that you have a piece of paper that describes your car. If you think about the costs associated with your car, you might take the time to evaluate whether you are paying too much for insurance. Shop around! You might save money by keeping track of when your car has been serviced — tires, oil change, brakes, and so on. And, of course, you can plan for what you want to happen to your car if you are gone.
You might discover that you owe more on your car than the car is currently worth. Or, if you lease your car, you may discover that your family would owe money on the lease if something happened to you. These discoveries might lead you to make choices now about your property as well as what will happen to your property upon your death.
If you are concerned that your heirs will not be able to make the mortgage payments after your death, you may want to consider mortgage insurance. It is not inexpensive, but it may allow your heirs to keep the home rather than having to sell. Or you can increase your life insurance coverage, which might be cheaper, depending on your age and insurability.
Let's say you have a sheet of paper that describes your home. One of the pieces of information about your home would be how much you owe and the interest rate you are paying on any loans against it. When you are organizing your notebook for your estate plan, you should evaluate the interest rate you are currently paying. If there are interest rates available that are less than when you financed your home, you may find you can save money now by refinancing your home. And, of course, while you are evaluating all of the current costs associated with your home, you can decide who you want to receive your home upon your death and whether that person could afford to maintain it.
If you have life insurance, describe the attributes of the life insurance on a piece of paper. You may discover that there are new life insurance products available that will pay a larger death benefit for lower annual premiums. This can help you now with current cash flow. And you can also evaluate who will receive the life insurance benefits when you are gone. You may discover that your life insurance will cause your estate to owe federal estate taxes. You will learn a way to make changes to your plan to avoid any estate taxes on your life insurance. See Chapter 15 on Life Insurance and Chapter 18 on Taxes.
You may not be the notebook type of person. Or you may feel that you do not need to organize your assets this way to create a plan that meets your needs. Another way to get organized is to complete a planning inventory. A planning inventory is a form that gathers the information you need to evaluate the property you own, assesses whether your estate would be subject to federal estate taxes, and prepares you to create the documents you need. A sample inventory is included in Appendix C. The inventory guides you through the steps to gather the information you need to plan, and it also brings all of the information together in one place for your family to access easily when you are gone. It is worth your time now to review the details requested by the inventory and to gather that information.
When something happens to you, your family is full of grief. In addition to their grief, having to go through all of your papers trying to gather the needed information is a painful burden. You can avoid this additional crisis for your family by being prepared. If you do not organize the information about your property by either filling out an inventory or preparing a three-ring binder or notebook, your family may not know what you owned or what you wanted done with that property.
It is not enough to complete the inventory or notebook. You must be sure your family knows where you keep the notebook, keys, statements, health care preferences, and other details about your plan.
Sometimes even when a person chooses to organize the information in a three-ring notebook, she also likes to complete the inventory, because the inventory summarizes the information in the notebook.