Estate Planning and Financial Planning-What is the Difference?
Share this post
Understand how estate planning and financial planning serve different purposes and how coordinating both can support your family and financial goals.
Estate Planning and Financial Planning Learning the Difference
So many terms about planning! Let’s begin by reviewing the difference between estate planning and financial planning. This should help clear up confusion on the subject. When it comes to planning out your finances, people are confused about the difference between an estate attorney vs. financial planner. Oftentimes, people use these terms interchangeably, but these professions serve different interests and goals.
Financial planning tends to focus on the accumulation and preservation of wealth. It often encompasses such things as:
- Clarifying Financial Objectives,
• Education Funding,
• Retirement Funding,
• Cash Flow Budgeting,
• Risk Management,
• Asset Protection, and
• Balance Sheet, Income Statements, and other financial measures.
Estate planning, on the other hand tends to focus less on accumulation and more on the protection and ultimate distribution of your assets, accompanied by specific instructions. Both financial and estate planning are ongoing processes—not events. It is inaccurate to say, “I did my financial plan” or “I did my estate plan.” Nothing in life is more certain than change.
Estate Planning or Financial Planning – Which Do I Need?
When it comes to estate planning or financial planning, the two areas are quite different and serve different goals. While the goal of a financial planner is to help you accumulate wealth, the goal of an estate planning attorney is to utilize various estate planning tools to help you preserve and distribute your wealth after your death.
Estate planning may touch on some of the same areas as financial planning (Ex: asset protection or tax planning), but estate planning also includes planning for the distribution of assets upon your death, minimizing estate taxes, protecting your heirs, and documenting your healthcare decisions. Typically, a financial planner cannot give you legal advice or draft the required legal documents necessary for an effective estate plan, which is why it’s important to also consult with an estate planning attorney. Depending on what type of professional you’re talking to, you may hear financial planning described as part of estate planning, or you may hear that estate planning is a sub-set of financial planning. Nevertheless, both types of planning are crucial, and must be integrated to achieve the best results for you and your family.
How Estate and Financial Plans Work Together
A financial plan may identify what you own, how assets are invested, and what resources may be available for retirement or other goals. An estate plan addresses who may manage those assets if you become incapacitated and how they should pass at death. Reviewing both plans together helps identify instructions or account arrangements that do not match.
Beneficiary designations are one common point of connection. Retirement accounts, life insurance policies, and certain financial accounts generally pass according to their beneficiary forms rather than instructions in a will. Those designations should be coordinated with any trusts created under the estate plan, particularly when beneficiaries are minors, have disabilities, or may need continuing asset management.
What an Estate Planning Attorney Provides
An estate planning attorney prepares the legal documents that puts your decisions into effect. Depending on your circumstances, these documents may include a will, one or more trusts, financial and health care powers of attorney, and directions concerning property management or distribution.
The attorney can also examine how property is titled, determine whether an asset should be transferred to a trust, and explain how beneficiary designations affect the plan. For business owners, estate planning may need to address ownership transfers, succession provisions, or agreements that control what happens to an interest after death or incapacity.
A financial planner may provide valuable information about investments, cash flow, insurance, and retirement projections, but those recommendations do not replace properly prepared legal documents. Likewise, legal documents should account for the client’s actual accounts, assets, liabilities, and financial objectives.
When Both Plans Should Be Reviewed
Estate and financial plans should be reviewed after major changes involving family, property, health, or business ownership. Marriage, divorce, the birth of a child, retirement, the purchase or sale of a business, and a significant change in assets may require updates to one or both plans.
A review can confirm that account titles and beneficiary designations remain consistent with the estate documents. It can also identify an outdated trustee, agent, executor, or distribution instruction before it creates a problem. Periodic coordination keeps both plans aligned as circumstances change.
Frequently Asked Questions
Can a Financial Planner Prepare My Will or Trust?
A financial planner generally does not prepare legal documents unless that professional is also a licensed attorney providing legal services. An estate planning attorney can draft a will, trust, power of attorney, and other documents required to carry out your instructions.
Do I Need Estate Planning if I Have a Financial Plan?
Yes. A financial plan does not determine who may make legal or health care decisions if you become incapacitated. It also does not replace a will, trust, or other documents governing the transfer and management of property.
Should My Financial Planner and Estate Planning Attorney Work Together?
Coordination can help both professionals base their work on consistent information. With your permission, they may review account ownership, beneficiary designations, insurance, tax concerns, and other matters that affect both plans.
How Often Should I Review Both Plans?
Reviewing both plans every few years and after major life or financial changes may help keep them aligned. Updates may be necessary when your family, property, business interests, health, or intended beneficiaries change.
Coordinate Your Planning Decisions
Financial planning and estate planning serve different purposes, but each may affect the other. A financial plan can help you build and manage resources during your lifetime, while an estate plan provides legal instructions for incapacity and the eventual transfer of property.
Anthony J. Madonia & Associates combines legal and tax-informed counsel when reviewing estate planning decisions. If your financial arrangements and estate documents have not been reviewed together, contact us to schedule a consultation.