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Estimating the size of an estate

When a New York resident attempts to begin planning their estate, one article suggests that he or she focuses on three basic issues. The first issue is how much of a person's assets will be transferred to an estate. Then, the benefactor should focus on designating heirs and beneficiaries. The last consideration is determining whether to distribute the assets before one's death or to set up mechanisms for distribution after one passes away.

The first calculation can be complicated. However, to gain a basic understanding, a benefactor might attempt to determine his or her net worth. This number is broadly defined as a person's assets minus the person's liabilities. After one's net worth has been estimated, the benefactor might then make calculations to determine his or her portfolio spending, which is defined by the amount of money that person will spend over the remaining years and the amount of income he or she will earn over that same time.

That figure represents the amount of funds pulled from an investment and savings portfolio that is necessary to maintain the benefactor's desired standard of living. Using the figures derived, the planner could estimate the size the portfolio must be to support the spending over a lifetime. Any funds beyond this required base may then be distributed through the person's estate plan without reducing the benefactor's quality of life.

While this formula is one a way to calculate the size of one's estates, those figures are only one step in the estate planning process. Developing a plan that minimizes devaluation due to taxes and distributes assets according to a benefactor's wishes can become complicated. However, an attorney who is familiar with estate planning techniques could help a client develop a strategy that fits his or her situation and desires.

Source: Forbes, "Estate Planning 101: How Much Do You Have To Pass On?", Larry Light, September 18, 2014

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