When people ask whether they need a will or a trust, the answer to their question usually is: "It depends."

Each type of estate plan has merits, and there are overlapping similarities in each. The only difference is your intention. In other words, what are you looking to accomplish?

To help you answer the question posed by this article, let's examine the differences then discuss how a will or trust may help you and your family.

What Is a Will?

Simply put, a will is a legal document that outlines how your property will be distributed upon your death. To create a will, you need to figure out three things:

1. Who will receive your assets
2. How much each beneficiary will receive
3. Who will help settle up your estate

When you create a will using GoGo Estate, you will be asked to how your beneficiaries will be and what percentage each beneficiary will receive under the will. Moreover, if your state allows it, our form documents include provisions allowing you to specify which items of your tangible personal property (i.e., jewelry, antiques, etc.) in a separate list that you can fill out later, that way you don't have to make that choice today.

Wills also appoint a person to settle up your estate. This person is known as the "personal representative" or "executor," depending on your state. This person acts like a power of attorney after your death. In other words, they are responsible for ensuring that your assets are distributed pursuant to the terms of your will.

Wills may be amended or rescinded at any point during life. An amendment to a will is known as a codicil. For the codicil or the rescission of the will to be effective, the same formalities for signing the will must be met. In general, for a will to be valid, it must be signed by the testator in front of two disinterested witnesses. You can learn more about the requirements for making a valid will in your state by reading more GoGo Estate articles.

What Is a Trust?

A trust is like a longer and more comprehensive will that plans for both life and death. Whereas a will only comes into effect after your death, a trust exists during your life. To get a better sense of how trusts work, we have to introduce you to three main characters:

1. The Settlor: The person who creates the trust.
2. The Trustee: The person who owns legal title to the trust property.
3. The Beneficiary: The person who benefits from having the property held in trust (i.e., they have equitable title).

The technical definition of a trust is this: the transfer of property by one person (the Settlor) to the trustee for the benefit of the beneficiary. We know that doesn't make a whole lot of sense, but bear with us. When the Settlor creates a trust, they transfer their property to the Trustee and the Trustee then holds the property for the benefit of the Beneficiary. Still doesn't make sense? Okay, maybe this will help.

Trusts are like businesses for your personal estate. When you start a business, you have to transfer some of your money into the business to get it off the ground. And once that business is started, you then have a responsibility as the president of the company to operate properly for the benefit of your shareholders. The same rules apply for a trust. The settlor creates the trust and transfers assets into the trust by transferring them over to the trustee. The trustee then acts like the president of the trust and manages the trust assets for the benefit of the beneficiaries.

Does that help?

When your purchase a trust plan through GoGo Estate, you will be creating a revocable living trust. This means that the trust can be changed or rescinded at any point during your lifetime. This is by far the most popular and useful estate planning tool used by people throughout the United States.

Revocable living trusts are the most popular and useful estate planning tools used by people throughout the United States for one reason: they avoid probate.

Revocable living trusts can be jointly created (as in the case of married couples) or individually. They are so popular for a couple of reasons. First, they avoid probate. This is the number one reason why people choose to create a revocable living through GoGo Estate. Second, a revocable living trust exists during the life of the settlor. This means that all of the assets held in trust can be used for the settlor's benefit in the event of incapacity.

"So, Should I Have a Will or Trust?"

Generally speaking, there are some benefits to both. Like we said, it all depends on what you want to accomplish. Here's a breakdown of the benefits of each:

Probate Avoidance

Probate is the court-based process for settling up an estate. Because assets held in a trust are removed from a person's estate, those assets avoid probate altogether. Wills, on the other hand, have to go through probate.

Wills must go through probate. Trusts don't.

If the goal is to make life easier for your family after death, then a trust may be the best bet. Probate can be very expensive largely because attorneys have to get involved. It can also take months or years before assets are distributed to beneficiaries in probate. Wills also become a matter of public record when they go through probate.

Trusts, as we mentioned, do not need to go through probate. As long as the trust owns assets upon your death, those assets will avoid probate. This will save your family time and money. Moreover, trusts, unlike wills in probate, are completely private transactions between the people involved in the trust. And the amount of time it takes to transfer wealth from one generation to the next is minimal as compared to wills (usually between two weeks and six months).

Planning for Life vs. Planning for Death

As mentioned above, wills only come into effect after death. They are not living documents, although they can be changed during life. But, when coupled with a power of attorney, your family members will be able to make certain financial and healthcare decisions on your behalf despite the fact that the will is not currently in existence.

Trusts, on the other hand, are documents which are created during life and help plan for all the curveballs life throws at you. If you become incapacitated, the assets held in trust can easily be used for your health, support, and maintenance. Further, if you have young children, the assets in trust can also be used for their benefit if you become incapacitated.

To better illustrate the difference, let's look at a couple of examples.

Example #1 - Incapacity with a Will

‍Amy is a single mom with two young children (both of whom are under 18). She previously created a will and powers of attorney. Because she did not have a trust, Amy's attorney-in-fact and other people in her life took over to take care of the kids. However, the guardians for the children had to pay for expenses out of their own pockets because the Amy has not died yet (so the kids don't receive the benefit of her estate) and because her power of attorney did not include provisions to allow for her assets to be used for the benefit of her children.

Example #2 - Incapacity with a Trust

Arnold and Betty are parents to three young children (all of whom are under 18). Arnold and Betty are in a terrible car accident. Arnold died in the car accident and Betty was left incapacitated. Betty's mom, Clare, became the successor trustee of their trust, and the trust had assets of upwards of $750,000, including the house, bank accounts, and a life insurance policy payable to the trust by virtue of Arnold's death.

The trust instrument specifically states that Clare, as successor trustee, can use funds held in the trust for the Betty's health, support, and maintenance, as well as the kid's education, health, support, and maintenance while they are under 18. Clare does just that. She is not out-of-pocket for the care of the children at this point because the trust allows her to use funds for the benefit of the kids if their parents are incapacitated but not dead. Moreover, if money gets tight, Clare can even sell the house and use the proceeds from the sale for the benefit of Betty and the kids.

Tax Matters

There are also differences in tax planning when it comes to trusts and wills. Wills, as we've covered, are relatively simple documents. While they can help plan for estate taxes and other types of taxes imposed after the death of the testator, they are not particularly useful for sheltering money and reducing the tax burden after death.

Trusts, on the other hand, are very useful for tax planning purposes. For high net-worth individuals, or those with aspirations of high net-worth, trusts are the best way to avoid or mitigate estate taxes. With proper planning, using both irrevocable and revocable trusts, the payment of estate taxes could be stretched out over the lifetime of both spouses, or be avoided altogether.

Conclusion

As we said at the beginning, whether you need a will or trust is all dependent upon what your planning goals are. If you feel that you want flexibility in the distribution and administration of your assets, then a trust may be the right fit for you. If, however, you feel that you need something simple to cover your bases, a will is perfectly fine. Either way, GoGo Estate has a plan for you.