The world of estate planning is filled with a lot of terms that can be confusing if you've never done an estate plan before. Once you've got the lingo down, it's usually a pretty straightforward path to understanding what you need for your estate plan. But as you are getting started on your journey, some of the terminology that's used doesn't always make sense.
A common question that I hear from new clients is:
What is the Difference Between a Will and Estate Planning?
While you will often hear both terms used interchangeably when discussing planning for your future, it's important to understand the difference, which is that a will is a document that is part of your estate plan. You can picture it as your will being a piece of your overall estate planning puzzle.
On its own, your will is a very important piece, but it also fits into the over plan, which is what we commonly refer to as an "Estate Plan." To help you stay abreast of the terminology, let's look at how a will and estate plan compare in scope and purpose, timing, flexibility and complexity, and comprehensiveness.
Scope and Purpose
A good place to start is the scope and purpose of a will vs. estate planning.
Will: Your will is a legal document that outlines how your assets should be distributed after your death. It primarily focuses on the distribution of your assets and the appointment of guardians for minor children if necessary. In states like Minnesota, it allows for you to elect for informal probate of your estate, which allows your loved ones to use a more streamlined process to manage your estate.
Estate Planning: Estate planning is a comprehensive strategy that encompasses various legal tools, including wills, trusts, powers of attorney, and healthcare directives. It addresses not only asset distribution but also your financial goals, healthcare preferences, and plans for incapacity or disability during your lifetime.
It's important to understand a general timeline of how these documents all interact with one another.
Will: A will becomes effective only upon your death. It does not provide guidance or protection during your lifetime.
Estate Planning: Estate planning documents can have an impact during your lifetime. For example, a healthcare directive can specify your medical preferences if you become incapacitated, and a financial power of attorney can appoint someone to manage your financial affairs if you're unable to do so.
It's important to understand that when you grant someone a power of attorney, that power expires with your death. At that time, it is your will that steps in and governs what happens to your estate. However, one document that can bridge this timing gap is a trust, which can be set up while you are alive but also govern your estate after you are gone.
Flexibility and Complexity
As with any legal document, the complexity will depend upon your specific needs. One of the primary reasons that people run into complications is that they download overly complex forms from websites that do nothing more than mail-merge their information into complex documents that do not actually suit their needs.
Will: Wills are relatively straightforward and suitable for individuals with simple estates. They are often less complex and less expensive to create.
Estate Planning: Estate planning can be much more intricate and is essential for individuals with complex financial situations, such as significant assets, business interests, or multiple beneficiaries. Trusts, in particular, are commonly used in estate planning to provide more flexibility and control over asset distribution.
Will: A will alone may not cover all aspects of your estate, leaving some assets subject to probate and potential delays in distribution.
Estate Planning: Estate planning offers a more comprehensive approach to protecting your assets, minimizing taxes, and ensuring a smoother transfer of wealth to your beneficiaries.
While a will is an essential component of estate planning, estate planning encompasses a broader range of legal tools and strategies to address various aspects of your financial and personal life, both during your lifetime and after your passing. The choice between a will and estate planning depends on your individual circumstances and goals.
Do You Need an Estate Plan?
If you need an estate plan or maybe just need to update one you had prepared before, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you to work with an estate planning attorney to get your plan prepared and implemented.