Assets and liabilities
Making a list of assets (money and belongings) and liabilities (debts) is one of the first steps in creating an estate plan. This article explains the main reasons a person should create this list and what types of items they should include. It also addresses the topic of how and why to include pets and suggests where to store the list.
What are assets (money and belongings)?
An asset is anything a person owns that is worth money. Common assets include:
- A house or condo
- Bank accounts
- A pension fund
- Investments such as stocks, bonds, and the cash value of life-insurance policies
- Personal belongings such as jewelry, cars, and furniture
- Sentimental items such as books, photos, and mementos
It would be difficult for a person to list every single asset they have. However, they should do their best to include their main assets and all items that have sentimental value, even ones with little monetary value. They should also remember to list all social media accounts, which are considered digital assets.
The financial part of the list should include details such as bank-account numbers and the location of any safety-deposit boxes
What are liabilities (debts)?
A liability is any money a person owes to another person or an institution, such as a bank, a mortgage lender, or a credit-card company. Some common debts are:
- A mortgage
- A personal, auto, or home-equity loan
- Money owning on a line of credit
- Credit card balances
- Unpaid medical bills
- Current unpaid utilities bills
Why should a person list their assets and liabilities?
Having a written inventory of financial information gathered in a single place helps in the estate-planning process in several ways:
- It gives the person a detailed picture of their belongings and finances. They can refer to the list when thinking about their will, living trusts, or gifts. Making a written list also lowers the chances that the person will forget about an asset or debt, such as a secondary bank account or an old credit card with a balance (money still owed).
- It allows lawyers and financial planners to see needed information when drawing up the estate plan.
- It provides important financial details to a) the caregiver or other individual who has financial power of attorney while the person is still alive and b) the executor of the person’s will.
- It allows the person to estimate whether they will have assets to give or be in debt after they die.
Should pets be on the list of assets?
The law considers household pets to be personal property, just like motorboats or jewelry, so they should be included on the list of assets. Putting pets on the list is also a good way to remember to include arrangements for their ownership and care in the will. Pets should be given a common-sense monetary value, such as how much it cost to purchase or adopt them, not an emotional value
Does the list of assets and liabilities go into the will?
No. The list of assets and liabilities is used for making the will, but it is not a part of the will itself. There are two reasons for this:
- First, a person’s assets and liabilities change continually as they buy items, pay off loans, and so on.
- Second, when the will goes through probate, it becomes a public document. If a detailed list of assets and liabilities is included in the will, any member of the public could see it.
The list should be kept in a place that is easy to remember and access, and it should be updated any time that there are significant changes. The executor of the will should be told where they can find the list after the individual has passed.
The list can also be included in a document called a “Letter of Last Instruction.” This is a non-legal document that contains items such as a list of personal contacts, usernames and passwords, and instructions for funeral plans. While this letter is not a legally binding document, it can help guide caregivers and administrators leading up to and after the individual’s death.
Creating legal documents
Durable power of attorney
Medical power of attorney
Overview of estate plans
Overview of trusts
Will and testament
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