While often used in the same context, will planning and estate planning are distinct. The processes involved with each have notable differences. It’s important to understand these differences as you consider how an estate will be passed on after the death of its owner.
Here, we’ll review how wills and estate plans differ, both in purpose and contents.
WILL: PURPOSE AND CONTENTS
A will is a legal document that declares your wishes for your assets, as well as the care of your minor children, in the event of your death. Wills ensure that when you die, your estate is managed as you would want it to be.
Without a will, the fate of your estate will likely be left up to state laws and court officials. Also, if you pass away without a will, it can force your loved ones to spend a substantial amount of time and resources to settle your affairs through the probate process.
WHAT DOES A WILL INCLUDE?
The three main components of a will are:
A will specifies how the owner’s assets will be distributed to beneficiaries. In the process of writing the will, you’ll explain which beneficiary should receive which asset. These assets may be heirlooms, money, cars, bank accounts – any of the contents of your estate that aren’t defined as “real property”, which we’ll discuss below.
Real property is defined as fixed property, such as land or a building. In your will, your home is likely the real property that you’ll be leaving to a beneficiary. Transferring real property can be a complex process, especially when compared to the transfer of smaller assets and possessions. Speaking to a skilled attorney can provide insight as to the best method for including real property in your will. You may even be advised to place the property in a trust.
When you write a will, you’ll have the power to name a guardian to care for your minor children in the event of your death. Without a will, this power would be given to the court. Typically, this means that guardianship of your children would be granted to your husband or wife, or to the closest family member. Whether or not this is the result that you want, it’s important for parents to name guardianship in their wills for the assurance that their children would be cared for by a trusted adult.
ESTATE PLAN: PURPOSE AND CONTENTS
Estate planning is a more comprehensive process than writing a will. There are more factors to include in an estate plan to provide complete protection to your beneficiaries after your death.
Through estate planning, you can create guidelines for the distribution of your estate to your beneficiaries. You can also create a plan for how your affairs and assets will be handled if you become severely disabled.
Generally speaking, the goal of estate planning is to ensure that your beneficiaries benefit as much as possible from your estate after you’ve passed. An estate plan also functions to minimize legal fees and the taxes imposed on an estate transfer after your death.
WHAT DOES AN ESTATE PLAN INCLUDE?
An estate plan includes a range of documents and provisions to ensure the proper management of your affairs:
Sure enough, a will is one of the main components of an estate plan. This document dictates who should receive the assets within your estate upon your death.
Medical directives provide instructions for the event that you’re no longer able to make medical decisions for yourself. This typically includes medical instructions, a health care proxy, and a durable medical power of attorney.
You’ll name a power of attorney in your estate plan. This individual will have the power to make certain decisions (namely financial) on your behalf if you become mentally and/or physically incapacitated.
In estate planning, a letter of intent is a document that defines your wishes for the actions taken after your death. This document defines how you want your estate to be transferred to your beneficiaries, as well as funeral plans and other instructions as needed.
You can help your beneficiaries avoid the probate process by including a trust in your estate plan. A trust contains assets that will be transferred to its beneficiary when the trustee passes away.
IN SUMMARY: WHAT DIFFERENTIATES A WILL FROM AN ESTATE PLAN?
The main difference here is that a will is a specific legal document, while an estate plan encompasses a broader range of documents and arrangements. A will is more limited than an estate plan in what it addresses. In fact, the will is typically just one piece of the entire estate plan, which provides exhaustive instructions for how an estate should be managed.