Financial Planning vs. Estate Planning (2024)

Financial Planning vs. Estate Planning: What’s the Difference?

People who fail to plan how to manage their wealth lose most of their fortunes. Hence, everyone who wants to secure a stable financial future needs financial and estate planning in their lives.

However, many people are confused about financial and estate planning differences. And rightfully so, especially if it’s their first time hearing about these concepts.

This article discusses the subtle differences between the two and why you need them at some point in your life.

What does an Estate Planner do?

An estate planner is a lawyer who gives legal advice on a person’s estate planning. They help you to properly control your wealth and plan what happens to it after you’ve left this world. An estate planner’s duties include crafting trusts and wills to distribute your estate to the chosen people or organization.

But what is an estate, exactly?

An estate refers to the property and money owned by a person. Bank accounts, investments, vehicles, land properties, furniture, insurance, jewelry, and other valuable items are part of a person’s estate.

Here are several reasons why you should hire an estate planner, especially if you have a sizeable wealth:

1. First, they prevent your estate from falling to unintended beneficiaries.
2. Second, estate planners can help minimize the taxes your beneficiaries must pay before receiving their inheritance.
3. Third, they will craft a will to minimize or eliminate disagreements and disputes among relatives and family members.
4. Finally, estate planners give you peace of mind knowing that you’ve safely secured the financial future of your loved ones.
5. These planners can also help you create a financial buffer for your family through insurance and investments.

Estate planning can be pretty complex and tedious for someone who hasn’t studied law. Hence, you need the help of estate planning advisors to explain how it works and what actions you could take.

Estate planning for small business owners is highly recommended at any stage of the business.

What does a Financial Planner do?

A financial planner can help you with short-term and long-term financial plans. They advise you on the steps you should take to attain your wealth goals while keeping your financial health in check. Moreover, financial planners also assist their clients in picking investments and other wealth-generating ventures.

Financial planners also educate and empower their clients to handle correctly handle finances. They can also suggest changing the client’s financial strategy based on current market conditions.

Below are some of the services that a financial planner can do for you:

1. Sits down with you to discuss your current financial health and future goals
2. Explain possible financial issues that may arise in your lifetime
3. Help you develop a financial plan involving insurance, college planning, retirement, estate tax, and more
4. Inform you of various financial vehicles like mortgages and insurance policies
5. Setup investment funds and other financial accounts for you

When hiring a financial planner, make sure that they are appropriately certified. They must also have the proper credentials and has designations such as chartered Financial Consultant (ChFC), Chartered Financial Analyst (CFA), and Certified Financial Planner (CFP).

What is the Difference Between Estate Planning and Financial Planning?

The main difference between financial planning professionals and estate plannings advisor is in the financial solutions they provide to people.

Financial planning is about how you can increase wealth through various investments and adequately manage your wealth. In short, the goal of financial planners is to help you gain more money through various strategies such as saving on an Individual Retirement Accounts (IRA) and a 401K.

Meanwhile, estate planning involves helping you (or your family) keep most of your accumulated wealth. Since estate planning requires the preparation of legal documents, it is often performed by a lawyer who specializes in this field. Aside from inheritance, estate planning also deals with incapacity and other unwanted events that may happen in the future.

Do I Need to Include Estate Planning in my Financial Planning?

It depends mainly on the client since everyone’s financial goal is different. However, including estate planning in your financial planning has various advantages. For example, setting up a will early in life will ensure that the beneficiaries of your estate get their fair share.

In general, estate planning plays a crucial role in your financial planning, regardless of the size of your wealth.

A comprehensive estate plan encompasses many legal matters that involve your and your family’s wealth. It also prepares you to deal with unforeseeable incidents such as incapacitation. Estate planning also sets who can make health care and financial decisions in your steed.

Comprehensive estate planning protects everyone who will benefit from your estate, including young children. Furthermore, it protects your loved ones from dealing with a huge tax bite during the wealth transfer.

Should I Get a Financial Advisor or Planner?

Depending on your financial goal, getting a financial advisor, a financial planner, or even both might be best.

A financial planner is involved in various facets of your financial life, including developing short-term and long-term wealth goals. They can also advise you on purchasing insurance, paying off debt, and saving for the future.

Meanwhile, a financial advisor specializes in building wealth, managing your portfolio, and mapping investment goals. They also monitor your financial strategy’s performance and make financial transactions easier.

Overall, it’s best to hire a financial planner and financial advisor so you can always have a second opinion. Furthermore, they can cover more grounds and present more money-generating opportunities. If you have a sizeable wealth, you might want to also hire an estate planner for the reasons discussed above.

Can a Financial Planner Prepare a Will?

Most financial planners don’t have a legal background. Therefore, they can’t create a draft of your will since they have limited knowledge about the legal technicalities involved in preparing such a document.

Furthermore, only an estate planning lawyer can prepare your estate planning documents. An attorney will ensure the will is worded correctly and binding and that your intentions for your loved ones are clearly expressed.

You can also get suggestions from an estate planning lawyer on supporting your heirs without going through probate. For instance, many people have life insurance, a non-probate asset paid to the chosen beneficiary upon death.