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Financial planning and estate planning can be compared to a Venn diagram image where two circles intersect. They are both interested in financial assets, they cater for the security of such assets, they help their clients plan for the future, and they both require professionals like financial advisors and estate planning consultants. Nevertheless, as similar as they might seem, there are crucial differences that must be addressed to get the best from both worlds.
Financial planning can be understood from words as simple as the component words that make it up – finance and planning. That is, it is a plan involving the calculation, appraisal, strategic allocation, and multiplication of one’s finances. With the help of a financial planner, a person can calculate their assets in terms of property, cash, intellectual property, bonds and stocks, to know what they have. Additionally, it involves the calculation of their liabilities in the form of debts incurred over time, such as: pending student loans, credit card debts, mortgages, medical bills, medical insurance, taxes, car loans any other debts owed. The subtraction of these liabilities from assets gives a clear view of what the person is worth. With this information, they are able to plan, strategize, invest, save, and achieve financial goals and financial security at a much faster pace.
Estate planning is the process of detailing all that one is worth, in terms of assets and organising them with the plans for control and distribution in the case of death or incapacitation. Unlike the financial plan above, estate planning requires the services of an estate planning consultant, in other words, an estate planning attorney. This professional is saddled with the responsibility of explaining to their clients the best steps to take that would be more beneficial to their assets and their loved ones in terms of minimisation of tax, privacy, avoiding their chances of being contested in court, taking care of minors when they are gone, and catering for beneficiaries who have special needs or who are financially irresponsible. It is also tailored to cater for the assets and choices of the client in a situation where such a person is deemed incapable of catering for their assets.
Although different, they both have their uses and benefits. Trusted estate planning attorneys and financial planners will tell you that both plans are important and mutually beneficial in the achievement of their individual goals.
For example, financial planning is interested in creating a platform through which the client can increase savings and develop multiple streams of income. These increased capital are then used to invest and generate more wealth. All these are done while also appraising the client’s earning power, spending habits, and curtailing certain choices while still living comfortably. By improving earning, reducing spending, increasing savings, and engaging in investments, the client is better able to accumulate wealth and have savings for emergencies, such as children’s education and a viable retirement plan.
All these have a direct effect on estate planning. There would be no need for estate planning if there is no estate in the first place. It is a proper adherence to financial planning that aids in the accumulation of wealth, which they can try to protect and distribute through estate planning. While financial planning helps the client to do well with assets while alive, estate planning allows such assets to remain viable and in good use after death. It prevents all the hard work and efforts of the client from going to people that they never worked for or going to people who would lay waste to all their efforts.
Financial planners and trusted estate planning attorneys work hand in hand to ensure the safety of the assets and financial aspirations of their clients. For instance, estate planning attorneys ensure that assets are secure and protected from taxes placed on assets like death taxes, federal transfer taxes, and income taxes and the like. They help to minimise tax deductions on the efforts of financial planning carried out over time by their clients. Additionally, financial decisions that have yielded millions in assets could be affected in one single day by events like divorce, bad business decisions, or even health issues. Estate planning helps to plan for these many possible risks and disadvantages to assets by protecting them from detrimental risks.
Moreover, both financial planning and estate planning are created for the client to achieve specific goals. They both work hand in hand to help such goals come to fruition. However, in the event of the death of such a client and the lack of an estate plan, a goal might never be reached or might take even longer to reach after months of back and forth in court.
Financial planning and estate planning are two sides of the same coin. They are essentially two circles in a Venn diagram with their own peculiar features, which meet one way or the other in an intersection. Trusted estate planning attorneys are calling the attention of more people to the importance of these two mutually beneficial plans, alongside their similarities, differences and peculiarities. Financial planning helps you live your legacy, estate planning helps you leave a legacy behind.
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