What is the Difference Between Estate Planning Vs. Will?

The big question when considering your legacy: Should you focus on creating a will, or a full estate plan? Both of these tools are designed to administer your financial affairs after your death, however, while the two terms are often used interchangeably, they don’t refer to the same process. It’s crucial to understand how each one works when deciding which best suits your needs.

In this guide, we’ll explore the key differences between estate planning and making a will, and what to consider when deciding which approach is best for you.

What is Estate Planning?

Estate planning is the strategy governing the management of your financial affairs, both during your lifetime and after your death. As a result, it’s more holistic than simply making a last will and testament. Let’s take a look at the components and purpose of an estate plan.

Key Components of an Estate Plan

Every estate plan is different, and they can vary significantly depending on the size of your estate, what the estate consists of, and your jurisdiction. During the estate planning process, you’ll typically want to consider these tasks:

• Reviewing assets and liabilities: Estate planning starts with a thorough inventory of your assets and a review of your liabilities. This will help you and your executors understand the overall value of your estate.
• Making a will: This legal document lists all of your assets and sets out who you’d like to receive them after your death. We’ll look at wills in more detail in later sections.
• Establish trusts: Depending on your circumstances and what you’re looking to achieve, you might also want to create one or more trusts. For example, putting assets in a trust can help protect them from creditor claims. Alternatively, you might want to place assets in trust for minor beneficiaries until they come of age.
• Designating power of attorney: With power of attorney, you can appoint someone to manage your affairs if you become incapacitated.
• Set out healthcare directives: In the same way that you can appoint power of attorney, you can also lay out your wishes regarding healthcare and name a healthcare proxy to make medical decisions for you if you are unable to communicate.
• Designate beneficiaries: An important part of the estate planning process is naming the beneficiaries of any life insurance policies or retirement accounts.
• Appoint a guardian: If you have minor children, it’s crucial to plan for their future by establishing a guardian for them.

Purpose of Estate Planning

The main purpose of making an estate plan is to safeguard your wealth for the future, secure your legacy, and ensure that your loved ones are protected. Unlike a will—which simply outlines how you’d like your assets to be distributed after your death—estate planning covers a range of different goals:

• Minimizing estate taxes: Estate planning encompasses strategies such as setting up trusts or making charitable gifts in order to reduce the tax burden on your estate.
• Bypassing the probate process: A legal process overseen by the courts, probate can be both costly and time consuming, taking anywhere from six months to several years. By using tools such as trusts that put assets into the ownership of a third party, an estate plan can help eliminate the need for probate.
• Protecting your assets: Estate planning can help to shield assets from creditors or legal claims.
• Protecting your loved ones: Estate planning does more than distribute assets and appoint guardians. It also helps avoid family feuds, for example, by naming and granting authority to someone who can make decisions on your behalf if you become incapacitated.

What is a Will?

A will is a legal document that specifies how you’d like your assets to be distributed after your death. While a will is an essential part of estate planning, it’s more limited in scope.

Purpose of a Will

Writing a will serves a range of different purposes:

• To outline who you’d like to inherit your wealth, property and possessions.
• To name guardians for any dependants such as minor children or pets.
• To appoint an executor to make sure that your wishes are honored.
• To specify any funeral arrangements.

Above all, a will ensures that your wishes are carried out after your death. If you don’t make a will, you run the risk of the courts making these decisions.

Types of Wills

A will is not a one-size-fits-all document. Here are some of the most common types of wills:

• Simple will: As the name suggests, this one covers the basics, such as naming an executor and outlining who will receive your assets.
• Living will (also known as a personal directive): This outlines your wishes regarding medical decisions if you become incapacitated. Would you accept an intervention such as a ventilator, for example?
• Testamentary trust will: This is a type of trust designed to come into effect after you die. For example, you may want to designate a trustee to manage assets on behalf of minor beneficiaries.
• Joint will: A joint will includes the wills of two people (generally married couples), with the surviving partner inheriting the whole estate after the other person dies.

Common Misconceptions About Wills

While wills seem simple enough, there are some common misconceptions. Let’s bust a few myths here:

Only Wealthy People Need to Make a Will

A will is an essential part of estate planning for everyone, no matter how wealthy you are. Your estate consists of all types of assets, from personal belongings to investments to cash. So even if you don’t have a fortune in stocks and shares, you’ll still want to make sure that any sentimental possessions go to the right person.

Making a Will is Expensive

If your financial affairs are complex, then it’s certainly a good idea to think about hiring a professional attorney to help you make a will. However, it doesn’t have to be costly or complicated. If your estate is relatively simple, you might want to consider an online DIY solution.

The Oldest Child Is Always the Executor

Don’t assume anything! Your executor is the person you name in your will—and while this could be your oldest child, it doesn’t have to be. It simply has to be someone you trust to carry out your wishes. If you don’t specify an executor in your will, then the courts will appoint one, and it won’t necessarily be your oldest child.

Key Differences Between Estate Planning and a Will

The simplest way to understand the distinction between a will and an estate plan is to see the former as a component of the latter. An estate plan is a comprehensive strategy encompassing a number of different tasks and documents, ranging from healthcare directives to establishing charitable gifts. A last will and testament is a legal document that forms part of an estate plan.

While a will clearly outlines how you’d like your assets to be distributed after your death, an estate plan covers financial arrangements during your lifetime, too—for example, by specifying your wishes in the event of becoming incapacitated.

Pros and Cons of Having Only a Will

Thinking of just having a will? Let’s explore the pros and cons.

Pros

• A will is simple and straightforward.
• Making a will can be an affordable process, and certainly less expensive than creating a comprehensive estate plan.
• A will provides a clear plan for distributing your assets in line with your wishes.

Cons

• A will might have to go through probate, making it a matter of public record.
• Making a will alone won’t help reduce the tax burden on your estate.
• With the exception of a living will, a will doesn’t plan for your care if you are incapacitated.

When to Choose Estate Planning Over Just a Will

Here’s why you might consider choosing an estate plan:

• If you have a large estate, an estate plan can help reduce the taxes your beneficiaries will have to pay, as well as potentially bypassing the probate process.
• An estate plan that establishes trusts can help keep your financial affairs private and shield assets from creditors.
• If you have dependents, a comprehensive estate plan can help ensure ongoing financial support.
• Estate planning protects you during your lifetime, for example by naming power of attorney if you’re unable to make financial decisions for yourself.

Deciding Which Option is Right for You

Still debating will vs estate planning? It all comes down to your individual goals and circumstances. It’s important to remember that the will vs estate planning debate doesn’t have to be either/or. One is part of the other, and ultimately, both wills and estate plans can help you secure your legacy and protect your loved ones.

Consulting a professional can help you choose the right path. Estate planning attorneys can help you write a will or craft an estate plan that will ensure the smooth administration of your estate after your death. And with the help of digital platforms such as Estateably, trust and estate professionals can streamline the administration process to make it as stress free as possible for your loved ones and ensure that your wishes are precisely carried out.