When planning their future and protecting their family’s wealth, most people don’t realize that financial planning and estate planning are very different things. Both areas offer professional advisors who can offer similar expertise, but they are also distinctly different.
It’s important not to make the mistake of assuming financial planning and estate planning are the same, here’s why:
What is Estate Planning?
Estate planning is the process of planning what will happen to your family and estate after your death. It should be assisted with the expertise of an estate planning attorney.
It uses legally binding documents and structures to ensure wealth and assets are shared as you wish.
Your estate includes everything you own, from real estate and cars to financial accounts and personal possessions.
Read Related: Frequently Asked Questions About Wills
Protect Your Kids
Estate planning also includes planning for your family. For example, your will should include guardians for minor children and provisions for your pets.
Some documents impact decision-making should you become incapacitated due to illness or an accident, such as a ‘Power of Attorney’ and a ‘Healthcare Power of Attorney’.
More complex relationships and estates will require expert advice. For example, families with special needs children, second marriages, large inheritances or complex debts.
That’s where an estate planning attorney comes in. While you can do basic estate planning alone, it will always limit your options and is considered dangerous. For example, you need to consider if your family could benefit from creating living trusts or in ways to reduce the impact of taxes.
What is Financial Planning?
Financial planning is the process of analyzing your current financial situation and planning strategies to achieve your financial goals. The goal is to accumulate and utilize wealth. It can be assisted with the expertise of a financial planner.
These can be short-term or long-term financial goals and focus on planning for life before death. For example, you may plan to save for a new home, invest your 401k, invest in stocks or save for your children’s college fund.
Financial planning does not involve planning for your estate post-life, how your estate will be shared or any power of attorney documents.
Can Estate Planning and Financial Planning Be the Same Thing?
No. However, confusion can arise as the two can overlap. The overlap almost always occurs with estate planning covering financial planning topics such as asset protection or tax planning.
However, financial planning never crosses over into estate planning. A financial planner should not be there to provide legal advice regarding estate planning and does not have the legal expertise to draft and sign estate planning documents.
What Type of Planning Advice Do I Need?
If you’re still confused about the type of planning advice you need, answer the following questions. If the answer is yes, then you can be sure it’s for you. It may be both.
However, it is important that everyone does some basic estate planning. Drafting a will is especially crucial for anyone with children, regardless of age.
Do I Need a Financial Advisor?
- Do you want to grow your wealth?
- Do you need assistance with investments?
- Do you want to identify your financial goals?
- Do you want to achieve your financial goals?
- Are you trying to save for or buy a house?
- Are you trying to get out of debt?
- Are you a business owner?
Do I Need an Estate Planner?
- Do you have minor children?
- Are you in a second marriage, or are you divorced?
- Do you have stepchildren?
- Do you want to protect your family’s wealth?
- Do you want to help your family avoid probate?
- Do you have a complex or large estate?
- Do you want to avoid disputes in your family?
- Do you want to set up a trust?
- Do you want to avoid your children or grandchildren getting all their inheritance at once?
- Do you want to minimize the impact of estate taxes?
- Do you want to appoint someone to make decisions on your behalf if you become incapacitated?
Do Not Misuse a Financial Advisor with Estate Planning
Do not make the potentially catastrophic mistake of using a financial planner with estate planning. Only use an estate planning attorney.
While financial advisors are well-educated and financial experts, they are not qualified to provide advice or action on estate plans.
Estate planning documents are legally binding. Any mistake could see the documents, such as will, become invalid. Or worse, remain valid but not go the route you want or expected. Shockingly, 70% of family wealth is lost by the second generation.
An estate planning lawyer will ensure your documents are valid and water-tight.
An estate planning attorney can also advise you on ways to plan optimally, such as using trusts or avoiding probate. This is especially true for complex or large estates or families involving divorces, special needs children or pre-existing trusts.
Can Your Financial Planner and Estate Planner Be the Same Person?
Unless your financial planner is also a qualified estate planning attorney, then you should hire separate people to help you. However, the two advisors can and, in many cases, should communicate with each other or share information to ensure your plans are on the right track and working together.
Read Related: The 5 Biggest Estate Planning Mistakes
Contact an Estate Planning Attorney Today
We hope this guide has explained the difference between financial planning and estate planning. For more personal and advanced support, we welcome you to contact our Florida estate planning attorneys today for a free consultation.
Our estate planning lawyers regularly help Florida residents to protect their wealth and optimize estate planning for their family’s future.
Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced estate planning attorneys, they can help you create a water-tight estate plan that protects your rights and wishes.