Estate Planning vs. Will: What’s the Difference?
While estate planning and writing a will often go hand in hand, they’re actually entirely different terms. Simply put, an estate plan is a broader plan of action for your assets that may apply during your life as well as after your death. A will, on the other hand, dictates where your assets will go after you die, who will be the guardian of your children and more. So while a will is often part of an estate plan, an estate plan covers much more ground. If you’re thinking about writing your will or creating an estate plan, it can be a good idea to speak with a local financial advisor.
What Is a Will?
A will is a legal document that details how you want your assets to be distributed after your death. It can also lay out your wishes when it comes to how your children will be cared after your death. Wills also name an executor who’s in charge of carrying out the actions in your will.
You can work with an estate planning attorney to create a will. However, there are also a number of online websites that can walk you through the will creation process. Some popular options include Quicken WillMaker & Trust and Trust & Will.
It’s often a good idea to have a will because it has clearly defined terms. Without a will, your heirs may end up having to spend a lot of time, money and energy figuring out how to divide up your assets through the estate court system in your state. And when you die intestate, which means without a will, the succession laws in the state where you reside will determine how your property is divided. This process can be drawn out and your assets could end up with people you didn’t necessarily want them to go to.
What Is Estate Planning?
Estate planning is significantly more broad and complex than writing a will. While a will is a single tool, an estate plan involves multiple tools. Some common inclusions are wills, powers of attorney, advance directives, trusts and more. Estate plans can involve both durable power of attorney for your finances and healthcare power of attorney for medical decisions if you’re incapacitated.
Estate planning may include thinking through topics even beyond legal documents. These can include things like deciding who has the power to make healthcare decisions on your behalf while you’re alive, in addition to deciding how your assets will be distributed after your death.
Despite what estate planning typically entails, it may have as broad or as narrow a focus as one sees fit. Those with more complicated estates may wish to create complex wills, trusts and estate planning tools. They may even wish to donate to charities to offset taxes on assets that will eventually go to heirs. However, if your estate can be distributed and your wishes acted upon using just a will, that might be enough.
How Is Estate Planning Different From Will Planning?
In short, wills are part of an estate plan, but an estate plan is more than just a will. However, they both fall under the umbrella of estate planning, so you’ll want to understand the limitations and benefits of each.
While a will is a legal document, an estate plan is a collection of legal documents. More specifically, they often including a will, trusts, an advance directive and various types of powers of attorney. An estate plan can handle other estate planning matters that can’t be covered in a will too. A will is a good place to start, but you’ll want to create an estate plan to ensure that your heirs are fully covered in the event of your death.
It’s common to hear people say that wills are for the normal person and estate plans are for the wealthy. However, this couldn’t be further from the truth. No matter how large an estate you have, there are always important bases to cover. For example, you’ll want to plan your power of attorney, property transfers and beneficiary designations on your insurance policies, retirement accounts and more.
If you only choose to create a will, you could cause headaches for your loved ones down the road. Your estate could go into probate, which can often be a strenuous and expensive process for those involved. Plus, your assets could end up being subject to hefty taxes. Not to mention they may not end up with the people or organizations that you want to benefit from them. If you’re not sure where to start with estate planning, it may be a good idea to talk to a financial advisor.
A will is an important legal document that specifies how you’d like your assets divided up upon your death. An estate plan is a broader concept that pulls together multiple legal documents. Again, this can include trusts, wills, advance directives and powers of attorney.
While having a will is important, it’s just a first step when it comes to creating an estate plan. In order to leave your heirs and loved ones in the best position after your death, you’ll want to create a comprehensive estate plan so that your assets can end up where you want them.
Estate Planning Tips
Estate planning is a complex process, as there are many documents to create and keep track of. In turn, working with an expert during this time can be helpful. That’s where a financial advisor can come in handy. SmartAsset’s free tool matches you with up to three financial advisors in your area in just five minutes. Get started now.
If you’re starting to think about estate planning on your own, it pays to be prepared. SmartAsset has you covered with a range of free estate planning resources.
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