Have you ever asked, “is estate planning the same as a will?” Well, a will is part of an estate plan, but an estate plan is more than just a will.
The word “estate” often conjures thoughts of giant, sprawling manors surrounded by lush gardens, polo grounds, dressage arenas, and horse stables. However, the truth is much more modest. In fact, you and almost everyone who you know have an estate.
Simply put, an estate is everything that you own. Most estates consist of some combination of the following:
- House.
- Vehicles.
- Checking accounts.
- Saving accounts.
- Investments.
- Retirement accounts.
- Life insurance policies.
- Personal possessions (electronics, furniture, jewelry, etc.).
- Other real estate (rental homes, vacation homes, etc.).
When someone dies, the goal is for their wealth and possessions (their estate) to pass to their chosen family, friends, loved ones, and charities. However, before that can occur, various fees and taxes may need to be paid from the estate.
This is where the estate planning vs will issue becomes more straightforward. In short, a will ensures that someone’s assets pass to the beneficiaries they choose, and estate planning ensures that those beneficiaries receive as much wealth as possible.
Possible fees and taxes
Some taxes and fees an estate may need to pay include outstanding debts, federal estate tax, Washington state estate tax, and capital gains tax.
Outstanding debts
If an estate has outstanding debts, such as unpaid bills and credit cards, the creditors must be paid before any assets pass to beneficiaries. In Washington state, creditors have up to two years after a person’s death to file a claim against an estate. However, according to Washington state’s Creditor’s Claim Procedure, if a “notice to creditors” is published in a legal newspaper once a week for three successive weeks, the time to file a claim against an estate is reduced from two years to four months after the first publication date. If an estate has more debts than assets, it’s known as an insolvent estate, and the creditors contend over who gets what. Although the heirs will not receive an inheritance, they are not responsible for the debts of their relatives.
Federal estate tax
In 2023, the federal estate tax applies to estates worth more than $12.92 million—or $25.84 million for couples using a concept called portability. Those estates will be charged up to 40% tax on any wealth above those amounts. The exemption amount changes annually. It will likely increase a little in 2024. However, in 2025, the exemption is expected to decrease to approximately $5.5 million for individuals.
Washington estate tax
Washington state is one of only 11 states (and Washington D.C.) that levies an estate tax. The exemption amount is currently $2.193 million, which is very low compared to the federal amount. Any wealth above $2.193 million is subject to taxes. Also, there is no portability at the state level. The Washington estate tax rate ranges from 10% to 20%.
Capital gains tax
A capital gains tax is levied on funds generated by selling an asset like a stock or real estate. The tax rate depends on whether someone held the asset for more or less than one year.
Will versus estate: What is estate planning?
The good news is that there are legal methods to minimize or avoid those taxes and fees (and others, too) and ensure that as much of your hard-earned wealth passes to the beneficiaries you choose. Estate planning helps you create a comprehensive plan to pass on your assets.
However, there are other goals of estate planning. Estate plans provide your family and loved ones with a detailed map of what someone would like done after they die or if they become medically incapacitated. The goals of estate planning include:
- Naming beneficiaries, including family, friends, and charities.
- Minimizing fees and taxes.
- Helping your family avoid costly legal (and emotional) complications.
- Creating an end-of-life care plan.
Estate planning is a personal process that’s different for everyone. While not everyone needs the same level of planning, everyone needs a plan.
A comprehensive estate plan utilizes many tools and documents. One of the most essential is a will. The issue was never estate plan vs will because a will is an integral part of an estate plan. Many people have valuable family heirlooms (even if the value is purely sentimental) in their estate and wills are legal records that ensure property and assets pass to designated beneficiaries.
While most adults should have a will, other documents are equally as necessary, including a General Durable Power of Attorney, a Health Care Durable Power of Attorney, and a Health Care Directive.
General Durable Power of Attorney
This legal form names an agent to act on your behalf when you cannot do so, such as if you are temporarily unconscious. Typically, this form enables your trusted agent to pay bills, manage bank accounts, and perform other designated tasks.
Health Care Durable Power of Attorney
This document names an agent to make medical decisions if you become temporarily incapacitated, including stopping or refusing life-sustaining treatment.
Health Care Directive
Sometimes called a Living Will, this legal form is used for extreme medical scenarios, such as permanent comas and terminal conditions.
There are also several trusts available to estate planners. Whether someone needs a trust and the type of trust that may be best for them is based entirely on their estate planning needs and goals.
Testamentary trust
A testamentary trust gives you some control over how beneficiaries use your assets, for example, if a beneficiary is young, has a gambling or addiction problem, or needs money to pay for education or medical care. This trust can also stagger payments, for example, 25% of the trust at age 25, 25% at age 30, and so on.
Revocable living trust
A revocable living trust transfers assets and property to avoid probate, saving heirs time and money. Probate is the legal process of changing assets and titles into the name of someone’s beneficiaries. In Washington state, probate can take up to a year and may be costly, too. A revocable living trust can be altered or dissolved anytime if circumstances or intentions change during the grantor’s lifetime.
Irrevocable trust
There are dozens of irrevocable trusts, and each fits a specific goal. Unlike a revocable trust, an irrevocable trust cannot be altered except in rare circumstances. Irrevocable trusts are primarily used to minimize taxes or provide asset protection.
Will vs estate planning: What is a will?
A will, or Last Will and Testament, is an essential document and an important part of someone’s estate plan. Passing away without a will is known as dying intestate. When this occurs, a person’s assets enter a legal process known as intestate succession, where the state decides who receives everything that is not co-owned or does not have a named beneficiary.
The benefits of a will include:
- Appointing a successor guardian to care for minor children.
- Naming beneficiaries for property and other assets. However, when a person only has a will, those assets must pass through probate.
- Specifying funeral arrangements and someone’s wishes for their remains.
- Holding a testamentary trust.
A will cannot:
- Transfer assets with a named beneficiary, such as a life insurance policy.
- Avoid probate.
Many families need an attorney’s assistance to probate an estate. The resulting fees are often much more expensive than creating a trust to avoid probate.
Additionally, not only is probate lengthy and often costly, but it is also a public process, which means your assets become part of the public record. For many people, the privacy provided by a revocable living trust is one of its most useful features.
However, even if someone’s estate plan includes a revocable living trust, that person still needs a specific type of will, known as a pour-over will. With a pour-over will, any assets held in the deceased’s name but not included in their revocable living trust are automatically transferred to the trust after they pass away. For example, an individual might open a new investment and not appropriately title the account. Although that asset will pass through probate, the combination of the pour-over will and the revocable living trust ensures it passes to the intended beneficiary. For more information about a living trust vs will head over to our blog.
It is not uncommon to wonder what is the difference between will and estate planning. The answer is that a will and estate planning go hand-in-hand because a will is an essential component of an estate plan. Without estate planning wills and health care directives, the state decides who receives your assets, and a doctor may determine how you spend the remainder of your life.
Harbor Law Firm makes your estate planning process as simple and stress-free as possible. We’re always available to answer “What is the difference between estate planning and a will?” and all other questions you may have. Our services include the following:
- Knowledgeable guidance customized to your specific circumstances and goals.
- A fully remote process that never requires you to leave home.
- Hours to fit your schedule.
- An adaptable process for exchanging documents and collaborating.
- Flat-rate pricing, so you’ll never be surprised by a legal bill.
We also offer complimentary consultations and can speak with you outside regular business hours. For more on our remote estate planning process, visit this page.
Our proven process defines precisely what you can expect, and our focus is always on your goals. Please contact us today to schedule your free consultation.