We have all seen countless movies and TV Shows where the family attorney reads the dead relative's last will and testament aloud to the family. Inevitably this leads to chaos and frustration within the family. Hijinks ensue and it makes for good programming.

But, while wills may make for good plot devices, they may not be the best option for families in the real world. For most families, especially young families, revocable living trusts may be preferred, if not outright recommended. To better understand why, we need to look at the difference between wills and trusts.

A Brief Overview of Both

A will is a written legal document providing for the distribution of a person's property after their death. It really is a simple as that; a piece of paper stating how you wish to distribute your assets at death.

A trust, on the other hand, provides additional advantages that are not legally allowable through a will. Depending on the situation, a GoGo Estate customer may prefer the revocable trust option offered on our platform. As the name implies, a revocable trust is completely revocable and amendable at any time before death. Furthermore, it helps accomplish life planning goals, like contingency plans in the event of your incapacity.

With that understanding in mind, let's take a deeper dive into how wills and trusts differ.

The Probate Requirement

Probate is the process of validating a will, ensuring that debts are repaid, and distributing assets to beneficiaries. Probate takes place within the courts, meaning that the courts are responsible for overseeing the distribution of the estate.

Probate can be incredibly time-consuming and costly for families. Not only are there filing fees and attorneys' fees, but there are also statutory waiting periods before a family can receive the benefit of a decedent's estate.

Wills, unlike trusts, must go through probate. This is an old requirement which has been around for centuries. The purpose behind it is pretty simple: The courts need verification that the person who allegedly made the will actually made it. The process is also used to repay creditors of the decedent.

Trusts avoid probate; wills do not. That means that beneficiaries receive assets from a trust more quickly than those waiting for a will to go through the court system.

In contrast, a trust does not go through probate. Technically, since the trust assets were transferred into the trust upon creation, those assets are not included in the decedent's estate. Instead, the assets are owned by the trustee of the trust who holds them for the benefit of the trust beneficiaries. And because the trust assets are owned by the trustee, probate is avoided altogether (we could dig deeper into the reasons behind this, but we don't want to put you to sleep).

Private vs. Public

As we now know, wills must go through probate. And, since probate is a court-based process, and since courts are public institutions, all probate matters are a matter of public record. In fact, most, if not all, states require the courts to publish notices in newspapers upon the filing of a probate estate. This provides creditors of an estate with notice to file a claim for repayment against the estate.

Trusts, because they are not required to go through probate, are completely private. Notice is not required in most states. Instead, in most states, it is completely optional as to whether the trustee has to provide notice upon the death of the settlor as to the assets held in trust. This means that when the settlor dies, creditors may have a harder time filing a claim against the trust (although the terms of the trusts purchased through GoGo Estate make it clear that any debts, taxes, and expenses must be paid before distribution to the beneficiaries).

Moreover, the courts do not get involved in the settlement of trusts unless there is a dispute among the beneficiaries. The trustee simply distributes the trust assets to the beneficiaries without ever getting court approval.

Effective During Life vs. After Death

Remember that wills only come into effect after death. This means that while the testator is living, no one has the authority to control the assets in their estate (except for an attorney-in-fact under a power of attorney). So, if the testator becomes incapacitated, the assets in his or her estate cannot be used to pay for his or her care and support merely because the will exists. Instead, those seeking to help the testator manage their affairs have to piecemeal the management of assets during life through various different channels like powers of attorney.

When planning with a trust, however, GoGo Estate customers may have an easier time planning for certain life contingencies like incapacity. This is because trusts exists during the lifetime of the settlor, not just after death.

For instance, when a customer creates a trust through GoGo Estate, and the customer has minor children (i.e., kids under 18), the terms of the trust will specifically state that assets held in trust may be used for the education, health, support, and maintenance of both the settlor and their minor children. The guardians of the children don't have to scramble around to figure out how to provide for the kids (as in the case of a will); the terms of the trust takes care of everything.

Now, because wills do not exist during the lifetime of the testator, GoGo Estate does include powers of attorney and other important documents in each will plan. When used properly, these instruments can accomplish similar goals to planning with a trust. However, the decision to purchase a will or trust plan is completely up to the customer.

Protection vs. Exposure

Trusts are very flexible arrangements. What do we mean by this? Well, trusts can be easily changed throughout the settlor's lifetime so long as the settlor is living and competent. Wills can also be changed by virtue of a codicil; however, the codicil must be signed following the same requirements for a will.

Trusts also come with added benefits that wills do not. For instance, trusts can be used to protect the trust assets from creditors of beneficiaries. This means that if a beneficiary is not good at handling money and defaults on a loan, the creditors of the beneficiary cannot go after the funds held in trust to repay themselves back. This is known as a "spendthrift provision." These provisions do not exist in the will context.

Trusts assets also retain FDIC protection up to $250,000 for each beneficiary, with a total protection cap of $1.25 million. Accounts held outside of a trust do not benefit from these same FDIC benefits.

For tax treatment purposes, when a customer creates a trust using GoGo Estate, and the trust is properly funded, taxes do not go up. The trusts currently offered by GoGo Estate don't necessarily shield assets from tax exposure, but they also don't increase potential tax liability for settlors or beneficiaries.

Easy Transfer of Wealth

Perhaps most importantly, there is a major difference between wills and trusts when it comes to wealth transfers. Because wills are subject to probate, assets cannot be transferred from one generation to the next until the probate estate has settled in its entirety.

Trusts, because they avoid probate if properly funded, do not have the same time restrictions as wills do. When properly funded, the assets in trust can be quickly distributed to the beneficiaries (either outright or in a testamentary trust) by simply presenting a death certificate to the institutional holder of an asset held in trust. This process can take up to a few weeks if done properly (much quicker than the time required for probate to be administered).

Conclusion

While the will and trust purchased through GoGo Estate are both effective ways to dispose of property after death, customers should seriously consider the differences before purchasing one plan over another. Therefore, it is important to weigh both options and consider which is right for you and your family.