Adding it all up: What is your net worth?

That familiar saying is particularly true when it comes to creating a snapshot of your net worth—pausing to add up assets and subtract liabilities to give you a sense of where things stand at a given moment in time. Whether done as a casual exercise or as part of a detailed wealth management plan, David Cieslowski, vice president and private wealth counsellor, says it is a valuable exercise for obvious and not so obvious reasons.  

Q: What kinds of situations prompt doing a net worth statement?

David Cieslowski: Some people do it out of habit annually, reviewing how things evolved over the previous year to better address coming changes or future decisions. Refinancing a mortgage or applying for a loan can also prompt doing a net worth statement as the lending institution may request income and asset-related information. 

The exercise of doing a net worth statement can also be materially helpful with estate planning and avoiding future family conflict.

Q: How so?

David Cieslowski: When thinking about doing a net worth statement, people generally tally up their investment and RRSP accounts, review their bank balances, have a sense of their properties’ values and figure in the amount of debt they are carrying. Those types of information are valuable, but they overlook the scope of assets that are important when transferring wealth. 

Investors often do not consider collections ranging from cars to coins to comic books. Each can be of substantial value, easily overlooked in a net worth statement, and not treated properly in a will. This reality can be problematic for an executor facing upset beneficiaries and the probate process. Take the case of an expensive painting that has been in the family for generations and which you have no intention of selling. When it is time for that painting to be passed to the next generation, it will be an asset taxed at fair market value. Will the beneficiary have the cash flow to pay those taxes, or would you be wise to buy life insurance with that objective in mind? In terms of equally distributing assets to family members, will the painting’s recipient be open to foregoing cash from the estate equal to the artwork’s value? Preparing a net worth statement that includes a laundry list of “less formal” assets can spark valuable discussions and decisions that avoid conflict and potential litigation later. You can extend the same questions to the common conundrum about what to do with the family cottage or other recreational property. 

I would also mention that when assessing the value of collections or heirlooms today, it is worth remembering that while a line item on your net worth statement, they are not readily liquid assets so it is prudent not to let their current value influence your spending.

Q: What about digital assets?

David Cieslowski: They are an increasingly important category on a practical and real value basis. For instance, higher profile assets such as cryptocurrency and non-fungible tokens typically make it onto net worth statements. We also encourage clients to consider less obvious assets such as travel points (transportation, accommodation) accumulated over years and of substantial dollar and user value. How do you want to distribute those assets to your family?  While airline points may not wind up in your will, noting such items on your net worth statement, even on a nominal basis, will help ensure they are not overlooked. You can proactively take steps to help ensure they do not go to waste.  

While it may seem like considerable work, our experience says having a net worth statement can empower short- and long-term decision-making in many ways.