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After Beth Pinsker’s father died, she had her mother set up a new estate plan that included a power of attorney, a legal document that gives permission for someone to make financial decisions on your behalf if you become incapacitated.
Yet it wasn’t until years later, when her mother needed surgery, that Pinsker realized they hadn’t taken one crucial step — taking the document to the bank and having it put in force on her mother’s bank account.
That misstep led to complications: When Pinsker took over her mother’s finances, she found her mother had fallen behind on her long-term care insurance payments. Because the premium had lapsed, her mother had to pay $6,800 to get current — money that Pinsker had to front from her own accounts as she waited for the power of attorney to get sorted out.
A 2021 AARP survey found that family caregivers spend an average of $7,242 each year on out-of-pocket costs. That long-term-care insurance bill — plus other expenses — put Pinsker over that amount within just one month, she said.
Pinsker, a certified financial planner and financial planning columnist at MarketWatch, already had expertise to help her navigate her family’s financial predicament. In her new book, “My Mother’s Money: A Guide to Financial Caregiving,” she hopes to arm other caretakers with the information they need to begin untangling money dilemmas before problems arise.
“You want to try to forestall bad outcomes as much as possible,” Pinsker told CNBC.com.
Older people may be more prone to financial missteps
As individuals age, they may be more likely to make financial missteps that require resolution.
Recent research from the Wharton School at the University of Pennsylvania finds that financial and health literacy scores among older adults fall about one percentage point per year, on average, over 12 years, from an average baseline score of about 70%, leaving those individuals more susceptible to scams and financial mistakes.
Those dilemmas can show up in different ways, according to Pinsker, who said she had had to intercede before a loved one shelled out $40,000 to a telephone scam. She said a friend’s mother failed to take her required minimum distributions from retirement accounts, resulting in additional tax paperwork and costs.
New Vanguard research shows that investors who miss their RMDs incur an average of more than $1,100 in tax penalties.
Pinsker recommends that families and loved ones minimize expensive oversights by addressing one area that everyone tends to avoid — estate planning.
A top reason people cite for not having a will is procrastination, according to the Center for Retirement Research at Boston College.
Even celebrities are not immune to this estate planning gaffe. When Prince made news headlines for not having a will, companies that provide will-writing services saw a significant uptick in interest, according to Pinsker. Yet over time, that interest tends to fade.
A will lets individuals decide what happens to their belongings when they die. But most people overlook that financial planning step, Pinsker said — even when they buy a home, often their most significant purchase.
“When you sign up for a mortgage, nobody will ask you or require of you to have an inheritance plan for that house,” she said. “But a house is the trickiest object or possession to pass along.”
‘Virtually costless’ documents you need at age 18
Estate planning isn’t just for older adults. Starting at age 18, everyone should have documents in place authorizing someone to handle their health and financial matters in an emergency, Pinsker said.
Without that planning, the “system is very unforgiving” toward any legal or medical intervention by anyone else, she said.
For example, parents cannot make a doctor’s appointment on behalf of a child who is over 18 without a health-care proxy, she said. A health-care proxy is a legal document that appoints someone to make medical decisions on your behalf.
Once they are 18, individuals should also set up a power of attorney, which allows someone else to make financial decisions on their behalf should they become incapacitated.
“Getting the health-care proxy and the power of attorney is a virtually costless five minutes of your time,” Pinsker said.
Both are simple documents that can easily be downloaded from the internet, she said. They are not official until a notary signs them, a service often available locally.
A HIPAA authorization allows another party to access someone’s personal health information.
A living will can let someone stipulate what they want for end-of-life care, including whether they want the use of breathing tubes and resuscitation.
‘These are not just useless to-do list items’
Each part of estate planning has a purpose, but also limitations. For example, while a power of attorney helps with authority to make financial decisions, that doesn’t carry over to medical decisions — and it also stops immediately upon someone’s death, Pinsker said.
To have a plan that fully considers an individual’s circumstances, it helps to have an estate plan drawn up by an attorney. For Pinsker and her mother, that cost roughly $5,000 each, she said. While that may seem like a hefty price, it can help prevent potentially more expensive issues later.
“Whatever you pay today is less than what anybody’s going to pay after the fact if you don’t have a will,” Pinsker said. “It’s going to cost so much more for your heirs to deal with your estate after the fact.”
“These are not just useless to-do list items that don’t matter,” she said.
“The reason why you do any of this is because you have people that you love,” Pinsker said. “They love you, and they want to help you. So you have to make it easier for them to help you.”
