What’s the need of setting up an estate plan when I already have a will? This is a common confusion among people who think both will and estate plans are the same things. These two terms are used interchangeably but that doesn’t mean both are the same. The difference between a will and an estate plan is quite simple. Estate planning is a broad term and a will is one part of a complete estate plan. Moreover, unlike a will that comes into effect after the death of the individual, an estate plan can apply during the individual’s life and after death. To get a better understanding of these two terms, let’s take a closer look at each. In this post, we will find out the differences between an estate plan and a will to clear all your confusion. So, let’s get started!
Meaning of a Will
A will is a financial document that outlines a person’s final wishes. It focuses on the distribution of your assets and wealth among your heirs after your death. In this document, you can also decide who will be the guardian of your young children if both parents die. It is also important to understand the difference between a will and trust. These are also separate documents that are a part of the estate plan. The purpose of creating a trust is to protect assets and direct their use according to owners’ intentions. A will, on other hand, deal with the direct distribution of wealth among your designated heirs and beneficiaries after your death. A will is a legal document that also includes instructions about how you want your kids to be taken care of after your demise. When setting up a will, you need to name an executor- a person responsible for carrying out the actions in your will. You can find online templates to create a will but it’s important to hire a qualified a will and estate planner to avoid making mistakes. It’s important to create a will because without this document, there can be family feuds, and the estate court system in your state will decide the distribution of your assets.
Meaning of Estate Planning
People don’t pay much attention to estate planning because they believe it is something that wealthy individuals need to worry about. But the truth is, estate planning is for everyone who owns an estate which includes:
- Bank accounts
- Retirement Plans
- Life Insurance
- Your home and other real estates
- Your car
- Your personal possessions
An estate plan is much more broad and complex than a will. A will is a single legal document while estate planning involves creating multiple documents that remain effective during life and after death. A comprehensive estate plan includes a will, trusts, powers of attorney, advance directives, and more. An individual can create a durable power of attorney for handling finances and healthcare power of attorney for making medical decisions in the event of incapacitation. Unlike a will that deals with the distribution of wealth after death, estate planning also involves decisions regarding handling your finances and healthcare matters while you’re still alive.
Estate Planning vs. Will
Unlike a will which is a single document that comes into effect after death, an estate plan is a collection of multiple legal documents. Estate planning is for everyone who owns some assets. It is especially beneficial for those with complex family dynamics such as individuals with more than one marriage, or multiple businesses, to donate a portion of their assets to charity, or make decisions regarding various aspects of their health and property. Estate planning allows you to create a financial power of attorney that designates an individual to handle your finances if you are unable to control them.