Nobody wants to think about the end of their life, but it is wise to know about inheritance tax to plan for the future and prepare for any eventuality, especially if you have a family and people who depend on you. This is why wills and testaments are such important documents, allowing a person to decide how their wealth, assets, and personal possessions will be distributed in the event of their passing.
These documents are designed to give you control over all that you own, so it’s very wise to take the time to learn about them and make the right choices; and while many people believe that will planning and estate planning are more or less the same, there are some significant differences between the two, as any estate planning attorney will tell you.
Understanding the difference between estate planning and will planning is vital for anyone to prepare for the future correctly. This guide will cover in-depth definitions of both forms of planning and explain the main differences between them to help you fully understand. Let’s begin by taking a look at what exactly estate planning is.
Definition of Estate Planning
So what exactly is estate planning? Well, to understand this term, we first have to know what we mean by ‘estate.’ A person’s estate refers to their entire net worth, incorporating all property, possessions, and assets in legal terms. This includes everything from life insurance policies to bank accounts, personal valuables, and even debts like outstanding loans and mortgages.
So when you talk to an estate planning attorney about the process of estate planning, it’s practically all about deciding how all of your estates will be handled when you pass on, or even before, such as instructions on what to do if you become disabled or severely ill.
The estate planning process usually begins with creating either a will or living trust, so will planning is actually just a small part of estate planning. The process then goes much further, covering all possible scenarios, eventualities, and aspects of your estate. Not only does it cover the division of your wealth and assets, but it can also help reduce the costs and fees for your heirs and loved ones too.
Definition of Will Planning
When compared to estate planning, will planning is a much smaller and more straightforward process. A will is just a tiny part of the overall estate planning process, but many people choose only to have a will rather than going down the route of working with an estate planning attorney to set out a full estate plan. In simple terms, will planning is creating a testament.
Your will is a document that allows you to decide who receives your assets and money after your death, who gets your property and possessions, who will inherit your business if you have one, who should look after your children or dependents in case of your death, and so on.
Creating a will is generally seen as the bare minimum for people to prepare for death, as it makes the process of dividing assets and wealth much more comfortable after a person’s death. Without a will, this process can be much more costly and time-consuming, but even with a will, the process can be as expensive in some cases as wills, even a probate process, which brings additional costs.
The Financial Power of Attorney
A financial power of attorney is another option you may consider when preparing for the future. This is a legal document that gives power to a trusted agent of your choice, allowing them to make financial decisions on your behalf if you cannot do so. These documents are often used in cases when the principal-agent is severely ill or disabled.
With a financial power of attorney, an agent will be able to effectively follow your wishes and decide how your finances, property, and so on will be managed. They’ll handle financial decisions and conduct transactions following your desires and the general scope of the initial agreement. It’s important to note that these documents are often particular regarding what the agent can and cannot do.
Why Do You Need an Estate Plan?
There are many potential reasons why you might want to consult with an estate planning attorney and develop an estate plan for yourself. Here are just some of the key advantages associated with this process:
- Providing for Loved Ones – Estate plans are often seen as superior to wills when providing for families and loved ones. Wills can come with lengthy probate processes and extensive fees, and dying without a will can cause even more complications. Having an estate plan ensures that your family will be provided for, with minimal fuss and expense.
- Protection for Dependents – One of the significant parts of estate planning is making sure that children or other dependents are looked after correctly after you’re gone. Without this kind of preparation, children can end up with Child Protective Services, and dependents may not get the care they need, with decisions left up to judges rather than relatives and loved ones.
- Minimizing Costs – As stated earlier, the probate process can be very costly. When people die without an estate plan, attorney expenses and court fees start to add up, and that money can be taken right out of the wealth and assets you’ve left behind, meaning that your loved ones will receive less than you hoped.
- Speed and Efficiency – Another significant advantage of the estate planning process is that it helps make sure that your property, money, and assets get to the people you love as quickly as possible. Without this kind of preparation, it can take months or even years for all the administrative processes to be carried out, leaving your loved ones waiting a lot longer for their inheritance.
- Assist with the Grieving Process – When someone dies, those left behind undergo a grieving process. It can be challenging for anyone to lose someone they care about, especially a beloved parent or family member. This process can be made worse if there are more financial stresses and worries regarding the will. Estate planning helps to eliminate those kinds of fears and anxieties for all concerned.
- Giving You Control – Ultimately, one of the significant advantages of estate planning is that it puts control firmly in your hands regarding all the wealth, assets, and property you’ve worked hard to accumulate throughout your life. It allows you to make the decisions for all you own, which is often a much more appealing prospect than only letting judges and courts decide on your behalf, without any input into the decisions whatsoever.
Preparing for the future is never a bad idea, especially for those with families, homes, and assets. Life can be unpredictable, and you never know what could happen next, but you can prepare for any eventuality, and an estate planning attorney can help.