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What is the Difference Between Estate Planning and Financial Planning?

It is easy to confuse the two distinct fields of estate planning and financial planning, especially since they do relate to each other and seem similar in some respects. It is tempting to think of estate planning as only pertaining to what happens to assets or property after death, but there is an important lifetime aspect to estate planning that should not be overlooked.

Financial Planning – Generally speaking, financial planning focuses on managing your current assets and resources to maximize investment gains and minimize taxes, as well as analyzing your income, budgets and spending. Typically, this can be done by a certified financial planner who has expertise in these areas, and can recommend different investment vehicles, strategies and instruments.

However, rarely is a financial planner also an attorney with experience in probate, trust and tax laws. Where it gets tricky is that some asset vehicles may affect your estate plan, and how ownership is structured and transferred. For example, there are specific rules on how IRAs are distributed to heirs, that differ from other standard investments.

Estate Planning – Even if you have gone through a financial planning process, when it comes time to make your estate plan some of your financial decisions may need to be reevaluated. An estate planning attorney can review all of your real property assets, investment accounts and other property to confirm how they are owned and how to best distribute them to heirs.

Other parts of estate planning that relate to your current finances are strategies such as making annual cash gifts to heirs to reduce your estate value and setting up current trusts for charity or other beneficiaries. To fund a trust, you will need to place some type of asset in the trust, and that should be more or less liquid in case it is needed quickly.

For example, with rising interest rates CDs are becoming popular again, and might be recommended as a low risk investment vehicle. However, if your trust is funded with a CD for a fixed term such as one or two years, it could not be accessed without penalties.

Bringing Estate and Financial Planning Together
Ideally, you want to have your estate and financial plans compliment each other, so that you are taking advantage of the best strategies possible.

Written by Andrea Shoup

Shoup Legal, A Professional Law Corporation can be reached at (951) 445-4114.

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