What is the difference between a will and an estate plan? Why do I need an estate plan instead of a will?
You might go to an attorney asking for a will, but you will leave with an estate plan. An estate plan is not simply a mechanism for transferring assets after death but is instead a personally-tailored and comprehensive plan for your incapacity and death.
(I am an attorney, but I am not your attorney. Nothing in this post constitutes an attorney-client relationship or should be taken as legal advice. The information here is merely for educational and informational purposes. You should always discuss your situation with your own attorney.)
When most people think about estate planning, I think that most of them think only of death and assets. Other people might just get overwhelmed and not want to deal with the reality of their mortality. (See, study reflecting 16% drop in estate planning among people aged 55 and older)1
If you want only a band-aid solution –a quick fix, then you should plan to have only a will.
However, if you want to preserve your dignity, your assets, and your wishes, you should have an estate plan.
What is an estate plan?
An estate plan is a personally-tailored set of documents and strategies that best suit you and your family.
The goal of the documents working together is to meet your own goals when you can’t. In other words, if you are incapacitated or dead, then your plan should kick in.
An estate plan is put in motion while you are still alive and well and endures beyond even mental and physical incompetence.
More specifically, your estate plan protects and transfers your accounts, your assets, and even your business. It appoints trusted friends, family, and professionals to prepare your taxes, manage your healthcare, and even care for your investments.
What does an Estate Plan do?
Estate plans might plan for long-term care
In some cases, estate planning includes long-term care planning like Medicaid protections, caregiver agreements, or insurance premiums.
Estate plans transfer family businesses
However, in still other cases, estate planning includes large asset protection, irrevocable trusts, and complex family business structures.
Estate plans protect and plan for your beneficiaries
Every estate plan is unique. Yours should reflect what you own, who your intended recipients are, and your final goals. These should be reflected in your estate planning documents.
If your beneficiaries have special needs or are minors, your estate plan should reflect that. Through minor’s trusts or supplemental needs trusts, you can control the flow of your gifts.
Estate plans name fiduciaries
Finally, your estate plan also names the trusted friends, family, or professionals who will execute your plan. What good is your estate plan if no one will be there to carry it out?
Your estate plan will include fiduciaries like an attorney in fact, an executor, or trustee.
Every document you create in your estate plan will have a trusted individual responsible for it’s execution. However, what could those documents include?
What is included in an estate plan?
At a minimum every estate plan should include a last will and testament, a living will, and powers of attorney.
In my opinion, while wills are what most people request, the power of attorney is the most important document in your estate plan.
Powers of attorney come in all shapes and sizes. But, for the purposes of an estate plan, powers of attorney are generally divided into 2 major types:
- 1. Health care
- 2. Property.
RELATED POST: Types of Powers of Attorney
Thus, after your will and living will, you will need powers of attorney that appoint someone to make your medical and your financial decisions.
What else could be included in an estate plan?
Beyond those 4 main documents, estate plans vary widely.
Other potential estate planning documents include:
- Guardianship appointments
- Revocable living trusts
- Irrevocable Trusts
- Family LLCs or Corporations
- Farm Trusts
- Funeral declarations
- Beneficiary designations
- Pay on death or transfer on death designations
- Deeds
- Affidavits
- Assignments
- The list goes on
For example, if you own a large farm property that you want to make sure stays in the family, your estate planning attorney might recommend an irrevocable farm trust.
However, trusts are only as good as their funding. So, your attorney will then ask you to sign deeds transferring the farm into the trust and to the trustee. Then you would also need to sign assignments of the farm assets and transfers of the titles for the farm machinery.
It’s easy to see how an estate plan can grow very quickly from just a simple will into a complex transaction.
RELATED POST: The Unfunded Trust Problem
Contrastingly, if you have a relatively small estate comprised of mainly your home and cash accounts, your attorney might assist you with adding beneficiaries. You may require pay on death designations on your accounts or even a transfer on death deed to your home.
Those estate planning techniques generally avoid probate too.
Do estate plans avoid probate?
While avoiding probate is more often than not one of the reasons that people want an estate plan, not every estate plan avoids probate.
Probate, or the court-administered transfer of your assets, is long, costly, inflexible, and public. However, it is not always avoided or avoidable.
RELATED POST: Why Might I Want to Avoid Probate?
Probate is not in and of itself a bad thing. I administer dozens of probate estates a year, and most of them move smoothly and efficiently from the date of death to the final distribution.
However, probate estates are far more costly than if the decedent had completed a comprehensive estate plan prior to death.
Some clients are in sticker shock when I quote them a price for an estate plan that avoids probate. However, for most, probate is thousands of dollars more.
In few instances, avoiding probate is simply impossible or ill-advised. At that point, your attorney should explain why your estate plan still subjects you to probate.
In all cases, your estate planning attorney should take the time to explain your estate plan and your alternatives.
Why do I want an Estate Plan instead of just a will?
Your estate plan will include a last will and testament. However, it will include all of the other documents necessary to a dignified life and effective asset transition.
While you might be interested in getting a will, it is more important to have a comprehensive estate plan tailored to your needs.
At a minimum your estate plan should include:
1. A last will and testament (with guardian appointment if your children are minors)
2. A Living will
3. A Power of attorney designating your attorney in fact for property decisions, and
4. A power of attorney designating your healthcare representative.
Many other estate plans will include a revocable living trust, deeds transferring ownership to the trust, and several other supporting documents.
But, how do you know what you need?
Where do I get an estate plan?
In my opinion, there is no substitution for meeting with a well-respected estate planning attorney who can take into account the laws in your jurisdiction, your family dynamics, and your wishes.
I always recommend that you meet with a licensed and respected attorney in your area who can curate your personalized estate plan.
For more information on the estate planning documents listed here, check out more of these articles on the Work. Plan. Mommy. Estate Planning page. Or, for a death planning checklist, click here for resources.