Why New Parents Need A Will with Laura Cowan

[Anthony] Hi, Anthony here. Today, we’re gonna talk about setting up wills or estate plans for young families, here in the New York area, and I have with me my good friend and colleague, Laura Cowan.

[Laura] Hello.

[Anthony] Laura and I work together quite often. She is a really great estate-planning attorney and she’s helped with many many of my clients, and I’m sure many young families are proud to call her their attorney.

[Laura] I hope so, yes.

[Anthony] So let’s jump right into this. Laura, the framework with which I’d like to have this conversation is… I’m gonna be a little selfish here. I have a sister-in-law and a brother-in-law who just had their first child, and I’m basically recording this for them, if that makes any sense. So I’m gonna try to ask you the questions that I imagine they need answered and fill in the gaps, find the information that they need and I’m just gonna send them a link to this episode and hopefully this will help them get on their way to do what they need to do for their young child and for their family.

[Laura] Yup, that sounds great.

[Anthony] So, let’s start off with the real broad basic question, why is it so… I mean, you hear it everywhere, from every talking head to every blog post to every financial magazine, everyone says its so important that a will be a part of your estate plan and your total financial soundness. So the question is why is it so important, especially for parents with minor children to have an estate plan?

[Laura] Yeah, so it’s really important for young families, parents that have minor children at home to at a minimum have a will, and the reason for that is because the will is the document where you name guardians for your children in the event that something happens to you and/or your spouse or your partner. And it’s really important that you make it known who you would want raising your children if God forbid something happened to you because if you don’t and something does happen, ultimately it’s going to be a court and a judge who makes that decision for you, and I don’t think that any parent really feels comfortable having a judge make that decision, so it’s really important for parents of minor children to have a will in place because then you could make known your choice of guardians for your minor kids in the event that something happens.

[Anthony] So let’s talk about that. How, exactly, do you go about appointing a guardian for a kid, and again, my sister-in-law and brother-in-law have a very precious and vulnerable eight-month-old, I think, so how should they go about the process of thinking about and appointing somebody for the young child?

[Laura] Yeah, so it should be somebody that you think would raise your children in the same way that you would raise them, with the same morals and values, and religion, and things that are important to you. It shouldn’t necessarily be someone who has the most money because it’s up to you as a parent to leave behind funds, whether that be through life insurance or something else to use for the upbringing of your kids, but rather you should be thinking about people who have the same morals that you do, who have the same values, and it doesn’t have to be a family member, it can be a friend. And then you also want to think about things like if you name a couple, let’s say your sister and her husband. You want to think about what would happen in the event of divorce or in the event that one of them passed away, would you want your sister’s husband raising your children if she predeceases you? These are the things you want to think about. So it’s mainly finding someone who you think would raise your children in the same environment that you would raise them in.

[Anthony] Laura, let me ask you then, just getting into the real nitty gritty, the technical, technically, how do you go about appointing a guardian? Is it part of your will? Is there a separate document? How exactly do folks go about doing that?

[Laura] Yeah, so it’s part of a will. So if you want to name guardians for your minor kids, you’ll need to get a will in place, and I recommend working with an attorney and not trying to draft one yourself online for a bunch of different reasons, but yeah, you’ll want to get in touch with an attorney and they’ll help you put together a will and that will be the document where you’ll actually name your longterm guardians. It’s also possible to create a document outside of the will, leaving your preference of guardians in the event that you haven’t passed away, but you’re incapacitated. Because the will kicks into place when you’ve passed away, but it’s also possible that guardians might need to step up in the event that you’re incapacitated and can’t take care of your children for that reason, so… But the most important document is the will because that’s where you actually name your choice of guardians.

[Anthony] And to be clear, when you say name guardians, is this how you choose who will have the physical care and custody of your children?

[Laura] Yeah, so that’s a great question. So these are the people who are going to be taking care of your children on a day-to-day basis. So providing that day-to-day care, it may not be the same people who will manage any money that you’ve left behind for your minor kids, which they can’t get until they turn 18, so it will have to be managed by someone else. You can name someone else to manage that money or you can have the person who’s raising your kids who on a day-to-day basis also be the same person who’s managing the money, but it can be two different people. So when we say guardians, we mean the actual physical people who are going to be taking care of your kids every single day.

[Anthony] I want to circle back to that part you mentioned about handling the money for the kids, but first I want to touch on how often do you get sort of pulled into the conversation or debate about who should be the guardians? So if a couple comes in to meet with you, what percentage of the time do they know which family members or friends will be the guardians and what percentage of the time are they asking you who should we choose, and maybe even ask you to even be sort of the judge between an argument of who would be best suited to be the guardian?

[Laura] Yeah, so I would say about half of my clients come in and they just know right off the bat. You know, we want it to be my brother and his wife, or we want it to be this friend, but you’re right oftentimes there’s a conflict between what each partner wants and/or just a general lack of knowing, who do you pick, you know what do you do if you don’t have any family members in this country, for example, or if you just don’t have anyone that you really that you would trust. And that can be difficult. Not everybody has a first choice in terms of guardians, so sometimes I do have to give a little bit of guidance with that and, ultimately, I remind them that the court is ultimately going to follow their wishes, hopefully, using the best interest of the child’s standard and just whatever would be the best interest for the child in terms of who they would be raised by. But yeah, I do get a lot of questions in terms… People don’t know who to choose. They’ll ask me questions about who would be the best person and which things should we be thinking about and does it matter where they live and does it matter if they’re a family member and things like that.

[Anthony] Does it ever get really sticky or awkward for you? Has there been situations where a husband wants his brother and wife wants his sister and they’re asking you to decide? I mean, have you ever been in that position?

[Laura] I’ve never been in that position, but I will say it’s not uncommon for people to just have no idea. What you don’t want to do is put off getting an estate plan in place because you can’t come to a consensus with your partner, who would like to name as guardians in your will. I have seen that quite often where people have come in and they’ve got a 16-year-old at home and they say that they were working on getting a will in place when the 16-year-old was a baby. They couldn’t agree on who they wanted to name as the guardian, so they just put off getting a will altogether, and here it was 16 years later and they still didn’t have a will. So I would advise against doing that. You want to come to some kind of consensus and make your wishes known because obviously there are a lot of other benefits to having a will or a trust in place. There’s a lot of other benefits to estate planning. And the last thing you want to do is to not do anything because you can’t come to an agreement with your partner on who you want to name.

[Anthony] So it sounds like something is definitely better than nothing, yeah?

[Laura] Yes, and the other thing to remember too is that you can change these documents. Wills can be amended, they can be revoked. So if you name one person as a guardian, and then a few years later you change your mind or think someone else may be a better choice, you can change the will and update it, so nothing is set in stone, but you’re right, it’s better to have something than nothing.

[Anthony] We’ve covered mostly from the perspective of the care and custody of the kids, I feel like you’ve answered those really great. What about money? I mean, doing an estate plan and your will is essentially a financial exercise, for the most part, correct me if I’m wrong. So how does the money fit into all this and why is it important in particular for parents with young kids to set up their wills and estate plans, from the financial perspective?

[Laura] Yeah, so there are a lot of things that parents are thinking about from a financial perspective. One, is that they don’t necessarily want their children to get their inheritance on their 18th birthday. So you can imagine, if you’re a young parent and you have minor children at home and then something happens to you when you’re without any proper documents in place, your kids are going to get whatever you’ve left behind for them on their 18th birthday, and this is something that virtually no parent wants, so it’s one of the reasons that estate planning is important. For parents, you can sort of draft your documents in a way that maybe staggers when your kids get their inheritance that you would rather they get maybe a third at 20, a third at 25, a third at 30, whatever you decide, but making sure that they don’t get a big check on their 18th birthday is really important. And then something else that matters is, like I referenced earlier, having, leaving funds behind for the person who’s going to be raising your children, so they’re not, they don’t have this financial burden of raising your kids without any financial assistance from you, so something like life insurance would cover that if something does happen to you. Someone would manage that money on your children’s behalf and they would be able to use it to help raise your kids and give them the standard of living that you would give them if you were alive.

[Anthony] You know you brought up a great point about the you know about a young child, 18 or even older, receiving a lump sum, and I would like to share a story from one of my cases where I did a plan for a lovely women who had four children, very close in age from ages 20 to about 16, they were all very close in age, and she thought, “Oh, my kids are almost adults, “so I’m not really going to bother with a trust.” And this was against my sternest advice, like you never know, you came in to do a plan, let’s do a proper plan. And she said, “No, let’s just skip the parts “about setting up a trust for the kids.” And lo and behold, unfortunately, she passed away in a very sudden, unexpected accident. So here she has these four kids, the oldest of which I think is 21 or 22, and they’re each inheriting a few… I don’t remember the exact amounts, but it was a substantial amount, I think maybe they were four or five million dollars in total, so maybe a million dollars each. So think about that. You have a 21-year-old, 20-year old, a 19-year-old, and so forth, each getting a million dollars-ish, and what I saw was, what I witnessed was unfortunately not a great statement on how humanity or capitalism works because the financial advisers, the salespeople just descended on them, and they were totally swept away, and unfortunately I think they were kind of taken in a few situations by all of these different people who had way more life experience and savvy than they did because they were so young. And unfortunately that tends to happen. There are folks like that out there, yeah?

[Laura] Yeah, yeah, and I think in many ways you’re doing your children a disservice by not putting any protections on the money that you leave for them, or by leaving it to them at too young of an age, I mean even if you have the most responsible 18-year-old, or the most responsible 21-year-old on the planet, there are still things that can happen outside of their control that can put that inheritance at risk. A law suit, or if they go through a divorce, then their future ex-spouse might have a claim to some of those assets, so even in the best case scenario, leaving a big chunk of money outright can be a really really bad idea, and there are other options. So that would be something that I would recommend. You speak with your lawyer about what other options you have in terms of having your kids get their inheritance either at a later age or having that money protected in a trust of some kind.

[Anthony] Okay great, I’m glad you brought it back to a trust. My understanding is that you mentioned some things, like some age brackets where you have the money come out at certain ages. So let’s talk about trusts. What is a trust and how does it fit into the estate plan?

[Laura] So a trust is basically, it’s a will substitute and I guess a revokable living trust is a will substitute, but the trusts that I’m thinking about are asset protection trusts, and these are a trust that come into play when you’ve passed away, and it would be the difference between leaving your money to your kids outright, versus leaving it with some protections on it. So if you leave your kids’ money in a trust, they’re going to be able to access those funds for things like health and education, maintenance support, things like that, but those assets are also going to be protected in the event that they get sued or in the event that they ever get a divorce. I don’t think anyone likes the idea of their daughter’s future ex-husband getting half of their IRA. So an option is, instead of leaving the inheritance outright, leaving it protected in a trust, in a way that your kids are going to be able to access the assets for things that you would want them to be able to access the money for, but it’s also going to be protected and this is something that the vast majority of my clients choose. This kind of a trust is not so much restrictive as it is protective. It’s not restricting the assets in a way that your kids aren’t going to be able to get to them, but rather protecting them from divorce, lawsuits, things like that.

[Anthony] That sounds excellent. However, for some folks when they hear the word “trust,” or “estate plan,” they think of things that are only meant for the wealthy or the very wealthy. So what do you think is the minimum amount of money or assets that a couple should have or a person should have before they start thinking about an estate plan or setting up a will?

[Laura] Well, the short answer is no. Estate planning benefits everyone no matter how much money or how little money you have. What I like to tell people is that in my opinion, estate planning is really about making decisions that are going to make things as easy as possible on your loved ones when you’re gone. And everybody cares about that, whether you have $10 in the bank or you’ve got 10 million dollars in the bank. It really isn’t about how much money you’re leaving behind, it’s about putting documents in place that are gonna make things as smooth and easy, and inexpensive as possible for the people that you care about during and otherwise very difficult times, so it’s a common misconception that people think well I don’t have that much money, so I don’t need an estate plan, and it couldn’t be further from the truth. The benefits of estate planning apply to everybody. We all have something and we all care about where it goes when we pass away, whether it’s a lot of money or not, and that’s what an estate plan helps out with. And in terms of a trust, this is another misconception that only really wealthy people need one, but again, even if you’re leaving only, say $100,000 behind to your kids, which is not a small amount of money, but it’s not millions either, you probably still care that that $100,000 doesn’t get blown on your kid’s 19th birthday. Or you probably still care. You don’t want half of that money to go to your child’s future ex-spouse. You care about those things. So the benefits of estate planning really they apply to everybody, whether you’re talking about hundreds of millions of dollars or a modest estate.

[Anthony] Fair enough and I totally agree. But you know couples do need to do a cost benefit analysis, yeah? Can you give us a sense of how much estate planning costs with an attorney, say maybe versus with a lot of this online software that seems to be coming out every day, and maybe the pros and cons of each?

[Laura] Yeah, so there are definitely disadvantages to trying to do your will or other estate planning documents online. Most people do it because, for a couple of reasons. First of all they think, you know how hard can it be? They don’t understand the intricacies of estate planning and how things can get pretty complicated pretty quickly, and then also people are trying to save money, and I understand that and I think that’s valid, people are trying to, we all have limited discretionary income and that matters. The problem with trying to do your own estate plan online is that it’s very likely you’re not going to do it correctly and even a small mistake or error or omission can have really disastrous consequences, and your family’s going to be the ones who suffer if you don’t do it properly, so it’s likely that you’ll either not draft the documents quite right or that you won’t execute them properly. They have to be executed and signed in a certain way, so I wouldn’t recommend doing an estate plan online because it’s just not likely that it’s gonna be done properly and you’ll probably end up spending more money in the long run, trying to get everything fixed. Now in terms of working with an attorney, some of the advice I would give would be work with a lawyer who charges a flat fee and not one who charges by the hour, and that way you’ll know exactly what your investment’s going to be, instead of fretting over every phone call and every email question you have that’s gonna make your bill go up. So try to find an attorney who charges a flat fee. And I would say, in New York City, a rough estimate for a will-based plan, with all of the ancillary documents and a full package might start at around $1,500 to $2,000, and then it would go up based on what kind of… If you wanted a trust instead of a will and had more complicated assets, it would go up.

[Anthony] Yes, and I can confirm from my own experience, that is the ballpark range of fees for solid attorneys here in New York. Laura, I’d like to add, you made some really good points about online wills or do-it-yourself wills and attorneys’ fees, so just from my experience as an estate planning, or, excuse me, as a probate attorney and as an executor, I’ve seen the end… What happens at the end. The end isn’t when you sign, really, the end is when you die.

[Laura] Correct.

[Anthony] That’s when you really find out if the plan is worth what you paid for it, right? Signing is just, you know, you could sign a napkin. It doesn’t mean anything until, you’ve only found out if it’s effective when you’ve actually passed away. So, I have seen plans that were either do-it-yourselves or done with an attorney who’s maybe not an expert in this area, maybe who does multiple things like car accidents one day, immigration the next day, and wills on Thursdays, and in my experience, there are just so many nuances. The slightest things can cause huge problems down the road, for example, I had a will where the lady passed away and she had her will done by an attorney, but I think it was sort of around the corner attorney, and because of one small nuance in the wording of her will, I don’t think the attorney picked up, we were forced to hire investigators and spend tens of thousands of dollars to track down an ex-husband in Central America.

[Laura] Oh my gosh.

[Anthony] Yeah, this could’ve totally been avoided. Not just the $10,000, but the months and months of stress and court time, and delays to the whole process while the family could’ve been mourning or moving on with their lives, we were sort of bogged down in this thing, basically, because of one sentence that a less-than-savvy attorney just missed. I get the difference between paying X number of dollars to the online service versus a professional attorney, but there is a reason for it, basically.

[Laura] Yeah, there’s a really good reason. It isn’t just that lawyers are trying to get your business and charge you more than you would have to pay if you did it online. Like you said, it’s just very easy to make mistakes and there are, it’s more complicated than people realize. Here’s a really great example. You could have two estates and each let’s say each one estate has got a million dollars of life insurance and that’s the only thing in the estate, and you could have another estate that’s got a million dollar piece of real estate. So both of those estates would be considered very simple, they each only have one asset, they’re each a million dollars. Well the estate with real estate is gonna have to go through probate when that person passes away, probate court, and that can cost as much as 5% of the assets, so that could be $50,000 that your heirs would lose because you’re having to probate that piece of property. Well the life insurance, on the other hand, is just going to get paid out to whatever beneficiary you’ve named, so the probate court doesn’t have to get involved. So in that instance, your heirs aren’t going to lose $50,000 dealing with lawyers and the court. Which this kind of thing comes as a surprise to a lot of people because both of the estates are the exact same dollar amount, right? So it’s not just how much money you have in your estate, but it’s the kind of assets that you’re holding. And it’s the little nuances like this that people just don’t realize could have a huge impact, financially, on how things happen when you pass away.

[Anthony] I can absolutely vouch for that because, again, we do things from the probate side of things, meaning after someone has passed, and, yeah, we see it all the time where the types of assets completely dictate what’s going on at the end.

[Laura] Yeah, it’s not the amount, which is what most people think, it’s the kind of assets that really make a difference.

[Anthony] So my sister-in-law and brother-in-law, so let’s say they’ve listened to this and they are like, “Wow, Laura sounds great. “We really should do this for our baby.” How do they get started? What’s the process like working with you?

[Laura] Yeah, so there are two ways to get started with my firm. One way is to come to one of my free events, I hold free seminars and webinars, and this is a really great way to get started to learn more about what kind of documents you might need to meet me to learn more about my firm. And I also review my fees at my seminars and webinars, so if you’re trying to get a sense for how much your estate plan might cost that’s a great way to get all the information you need in a very informal, relaxed environment. I also offer personal consultations, so I welcome people to come in for a personal consultation, a one-on-one meeting with me. There’s a fee for this meeting, which is $179 and then that’s applied towards any future work that you do with us. And then in that one-to-one meeting we would go over your situation extensively, your family, your assets, and I would give you my advice and then you could decide if you wanted to move forward, so those are the two best ways to get started with my office.

[Anthony] All right Laura, this has been great. I think I have everything I need to be able to wrap this up and send it over to my sister-in-law. Is there anything you’d like to add for her or anyone like her, who’s young parents, maybe with a newborn or maybe even a baby on the way, and thinking about doing their wills?

[Laura] Yeah, I would just recommend meeting with an attorney and doing some research, and finding one that you like. The thing about estate planning is it isn’t just something that you do once and then never think about again. Your life is going to change, your assets will change, the law will change. Developing a relationship with a good estate planning attorney is something that you’re gonna want to do because your will today may be different from what you want it to look like five years from now or 10 years from now, so having a good relationship with a good lawyer is really the best way to make sure that your family and your assets are protected if and when something does happen.

[Anthony] That’s all I have, Laura, and thank you so much for jumping on and giving that breakdown for… That I think is going to be super helpful for young families. Again, thank you for your time. Everyone else, thanks for listening. Make sure to go to AnthonySPark.com to check out our contact information. Join our email list, look at the full show notes for this episode. Talk to you later, bye.

[Laura] Thank you, bye.