You know that the first step in doing your estate planning is to figure out what your net worth looks like. That starts with simple things, like adding up the money in your bank accounts and investments. Then you move on to tangible assets; for instance, an art collection could be worth hundreds of thousands of dollars, and you’re going to pass it on, so that’s part of your net worth.
But what about your house? You often hear people say that the home is the largest and most valuable asset a lot of people own. How does it play into your plan?
It depends on whether or not you have a mortgage. If you own the house outright, it’s an asset. If you still owe money on a mortgage, though, you have to subtract that debt from your overall net worth. If you leave the house to a child, they have to take on that mortgage. So, even if your home is worth $500,000 on the open market, it doesn’t add that much to your net worth if you’re still paying the mortgage every month.
That said, your home is not just a liability. You’ve likely paid off some of it, and that can create value. For instance, maybe you owe $250,000 and you’ve paid $250,000. That’s a wash in terms of net worth, but, if you leave the home to a child who already owns their own home, they can turn around and sell it and make $500,000. It still has value to them even though you haven’t finished paying the mortgage yet.
You need to carefully consider all aspects of estate planning and the options you have.