Estate planning vs. will? How to plan for after you’re gone

Published August 30, 2022

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The terms “estate planning” and “will” often get used interchangeably, but they don't mean the same thing—not at all.Your estate plan is a comprehensive course of action for all your assets, and it sometimes comes into play while you're alive (and after you die). Your will, on the other hand, simply designates what happens to your assets after you pass away. That's it.So, a will is a part of an estate plan, but only part.Still confused? Don't worry—below is a crash course in wills vs. estate planning. First, let's define what each is, and then we'll highlight the key differences. Lastly, we'll show you an excellent way to effectively consider your real estate investments within your estate plan.

What is estate planning?

Estate planning is complex and comprehensive. It might involve any (or all) of the following:

Wills
Trusts
Beneficiary designations
Powers of attorney
Advance directives

Not everyone needs an exhaustive estate plan to divvy up and distribute their assets. However, they can be incredibly helpful if you owned a business or real estate investments, have specific plans for investment distributions, or want to donate some of your wealth to charity.Estate plans can even outline special conditions. For example, if you want to leave assets to your children but they aren't old enough, an estate plan can designate a trust to handle these funds until they're ready. A trust, like a will, is a component of an estate plan.Remember, an estate plan is a big benefit for your heirs. Being diligent in creating a complete legal document can help avoid family turmoil, confusion, and mishandled funds after your death.

What is a will?

A will is a much more simplified document outlining how your assets will be distributed. Your will names an executor, and they're responsible for carrying out the details of your will after you pass away.Your will can include distribution details for your assets and also wishes for how your descendants will be cared for after your death. For example, if you still have children in your house, you might designate a parent or sibling to take care of them should you and your spouse pass away.A will is an essential document. If you pass away without one, your state's laws will determine how your assets get divided (and it might not end up the way you hoped).Keep your will up to date. Many people handle creating a will as a checkbox to-do item—once it's done, they forget about it. However, life changes can impact the items you have outlined in your will.For example, if one of your beneficiaries passes away, you'll need to update your will to ensure the assets are allocated appropriately. You'll also want to think about the health of your executor. If you've chosen an older sibling, they might decline faster than you—thus, you'll need to be prepared to choose a new one.State laws also change. This could impact your economic tax status, requirements for executors, and inheritance laws. Make sure you’re on the lookout for changes so that you can update your document if necessary.Estate planning vs. will: Key difference Basically, a will is a single part of an estate plan, and your estate plan is a complex collection of legal documents to support your larger plan.Estate planning isn't just for the wealthy. It's for those who want to create the most cost-efficient plan with the least amount of hassles for those who'll inherit your asset.While a will is better than nothing, that single document alone could cause confusion and headaches for your heirs later. It's often better to do the extra work up front and create a comprehensive estate plan.

Consider your real estate in your estate planning

Do you have a rental property or other real estate investments in your portfolio? Do you want to pass it to your heirs but want them to also avoid inheriting the hassles of management or selling? Consider using a 721 or 1031 exchange to exchange the equity in your real estate investment assets for shares in a trust or portfolio while you’re still here.When you leave your heirs with shares, they are likely eligible to inherit the investment without having to pay capital gains tax. Depending on the investment vehicle you’ve chosen, your heirs could continue to get income and upside, or they could redeem if they decide they’d rather use the cash for something else.Leaving your beneficiaries with shares instead of actual homes or pieces of property makes dealing with the asset simple and easy. No one has to make hard decisions to sell or rent it and no one is responsible for becoming an unexpected landlord. It's a win-win for everyone.

Landlords, retire and minimize taxes.

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