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After Beth Pinsker’s father died, she had her mother create a new estate plan that included a power of attorney, a legal document that gives someone permission to make financial decisions on your behalf if you become incapacitated.
But it wasn’t until years later, when his mother needed surgery, that Pinsker realized he hadn’t taken the important step of taking the documents to the bank and enforcing his mother’s bank account.
This failure compounded the problem. When Pinsker took over her mother’s finances, she discovered that her mother was behind on her long-term care insurance payments. Because her insurance had expired, her mother had to pay $6,800 to get a current item, but Pinsker had to advance the money from her account while she waited for her power of attorney to be processed.
According to a 2021 AARP study, family caregivers spend an average of $7,242 annually on out-of-pocket costs. Pinsker’s long-term care insurance bill, along with other expenses, exceeded that amount within just a month, she said.
As a certified financial planner and financial planning columnist for MarketWatch, Ms. Pinsker already had the expertise to help her family overcome financial hardship. With her new book, My Mother’s Money: A Guide to Financial Caregiving, she hopes to give other caregivers the information they need to start solving money dilemmas before they become problems.
“You want to avoid bad outcomes as much as possible,” Pinsker told CNBC.com.
Older people may be more prone to financial failure
As you get older, you are more likely to make financial mistakes that need to be addressed.
A recent study from the Wharton School at the University of Pennsylvania found that older adults’ financial literacy and health literacy scores declined by about 1 percentage point annually over 12 years from an average baseline score of about 70%, making them more susceptible to fraud and financial mistakes.
Pinsker said these dilemmas can manifest in a variety of ways, and she had to mediate before a loved one spent $40,000 on a phone scam. She said her friend’s mother was unable to take required minimum distributions from her retirement account, resulting in additional tax paperwork and costs.
Investors who miss out on RMDs face an average tax penalty of more than $1,100, according to a new study from Vanguard.
Pinsker recommends minimizing costly oversights by addressing an area that families and loved ones all tend to avoid: estate planning.
According to Boston College’s Center for Retirement Research, procrastination is the top reason people give for not having a will.
Even celebrities are not immune to this estate planning blunder. Pinsker said that when Prince’s lack of a will hit the headlines, interest from companies offering will-writing services increased significantly. However, over time, that interest tends to wane.
A will determines what happens to an individual’s belongings when they die. But most people overlook that financial planning step, Pinsker says. Even when making your most important purchase: buying a home.
“When you sign up for a mortgage, no one will ask or require you to do an inheritance plan for that home,” she said. “But a home is the most difficult object or possession to transfer.”
‘Virtually Cost-Free’ Documents Required at Age 18
Estate planning isn’t just for seniors. Pinsker said everyone starting at age 18 should have a document in place that authorizes someone to take care of their health or financial matters in an emergency.
Without that plan, she said, “the system is very intolerant” of any legal or medical intervention by others.
For example, she said, parents cannot make doctor’s appointments on behalf of their children over 18 without a health insurance agent. A health care representative is a legal document that appoints someone to make medical decisions on your behalf.
Once an individual turns 18, he or she must create a power of attorney. This allows someone else to make financial decisions on your behalf if you become incapacitated.
“Obtaining a health care power of attorney and power of attorney takes five minutes of your time at virtually no cost,” Pinsker said.
Both documents are simple documents that can be easily downloaded from the Internet. Although it is not official until it is signed by a notary public, this service is often available locally.
HIPAA authorization allows third parties to access someone’s personal health information.
A living will allows you to specify your wishes regarding end-of-life care, such as whether you want a breathing tube or resuscitation.
“These aren’t just useless to-do list items.”
Each part of estate planning has a purpose, but it also has limitations. For example, a power of attorney can help with the authority to make financial decisions, but not medical decisions. Also, a power of attorney immediately ends when someone dies, Pinsker said.
To ensure that you have a plan that fully considers your individual circumstances, it can be helpful to have an attorney create your estate plan. For Pinsker and her mother, it cost about $5,000 each. It may seem like a high price to pay, but it can help prevent potentially more expensive problems down the road.
“What you pay today is less than what someone would pay after the fact without a will,” Pinsker said. “It would be very expensive for your heirs to deal with your estate after the fact.”
“These aren’t just useless, unimportant to-do list items,” she said.
“The reason you do this is because you have someone you love,” Pinsker said. “They love you and want to help you. So you have to make it easy for them to help you.”
