Estate planning helps limit costly mistakes: ‘My Mother’s Money’ author
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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 allows someone to make financial decisions on your behalf if you become incapacitated.
But years later, when her mother needed surgery, Pinsker realized that they had not taken the crucial step of taking the document to the bank and putting it into effect in her mother’s bank account.
This misstep led to complications: When Pinsker took over her mother’s financial affairs, she realized she was behind on her long-term care insurance payments. Because the bonus had expired, her mother had to pay $6,800 to get current payments; Pinsker had to pay this money from his own accounts while he waited for the power of attorney to be resolved.
2021 AARP research found that family caregivers spend an average of $7,242 each year on out-of-pocket expenses. The long-term care insurance bill and other expenses pushed Pinsker over that amount in just one month, he said.
Pinsker, a certified financial planner and financial planning columnist for MarketWatch, already had the expertise to help her family get through financial trouble. in it new bookWith her book, “Mom’s Money: A Guide to Financial Caregiving,” she hopes to equip other caregivers with the information they need to start solving money dilemmas before problems arise.
“You want to try to prevent bad outcomes as much as possible,” Pinsker told CNBC.com.
Older people may be more prone to financial missteps
As individuals get older, they may be more likely to make financial missteps that require resolution.
latest research Researchers from the Wharton School of the University of Pennsylvania found that financial and health literacy scores among older adults dropped an average of one percentage point per year for 12 years from an average baseline score of 70%, making these individuals more susceptible to fraud and financial mistakes.
These dilemmas can arise in different ways, according to Pinsker, who said he had to mediate before a loved one invested $40,000 in a phone scam. She said a friend’s mother was unable to take required minimum distributions from her retirement accounts, resulting in additional tax paperwork and expenses.
New Pioneering research It shows that investors who missed their RMDs were hit with an average tax penalty of more than $1,100.
Pinsker recommends that families and their loved ones minimize costly oversights by tackling an area everyone tends to avoid: estate planning.
According to the research, the most important reason people give for not having a will is procrastination. Pension Research Center at Boston College.
Even celebrities aren’t immune to this estate planning faux pas. According to Pinsker, when Prince made news headlines about not having a will, there was a significant increase in interest from companies providing will-writing services. However, over time, this interest begins to wane.
A will allows individuals to decide what happens to their belongings when they die. But Pinsker said most people ignore this financial planning step; even when buying a home, which is often their most important purchase.
“When you sign up for a mortgage, no one is going to ask or demand that you do an inheritance plan for that home,” he said. “But the home is the most difficult object or property to transfer.“
The ‘almost cost-free’ documents you need at 18
Estate planning isn’t just for older adults. Starting at age 18, everyone must have documentation authorizing someone to handle their health and financial matters in the event of an emergency, Pinsker said.
Without this planning, he said, “the system would not be very forgiving of any legal or medical intervention by anyone else.”
For example, parents cannot make a doctor’s appointment on behalf of a child who is 18 or older without a health attorney, he said. A health care proxy is a legal document that designates someone to make medical decisions on your behalf.
Once individuals turn 18, they must prepare a power of attorney that allows someone else to make financial decisions on their behalf in the event they become incapacitated.
“Obtaining a health care power of attorney and power of attorney is an inexpensive process that takes almost five minutes of your time,” Pinsker said.
He said both are simple documents that can be easily downloaded from the internet. They are not considered official until signed by a notary; this service is usually available locally.
HIPAA authorization allows another party to access someone’s personal health information.
A living will can allow someone to specify what they want for end-of-life care, including whether they want the use of breathing tubes and resuscitation.
‘These aren’t just useless to-do list items’
Every part of estate planning has a purpose, but it also has limitations. For example, although a power of attorney helps with authority to make financial decisions, it does not translate into medical decisions and also terminates immediately upon someone’s death, Pinsker said.
To have a plan that fully takes into account the individual’s circumstances, it helps to have an estate plan prepared by an attorney. For Pinsker and his mother, that cost was about $5,000, he said. While this may seem like a high price, it can help prevent potentially more expensive problems later on.
“The amount you pay today is less than what anyone would pay from now on if you don’t have a will,” Pinsker said. “After this incident, it will cost much more for your heirs to deal with your estate.”
“These aren’t just useless, unimportant to-do list items,” he said.
“The reason you do this is because of the people you love,” Pinsker said. “They love you and want to help you. So you make it easy for them to help you.”
