When it comes to estate planning, many individuals often procrastinate or overlook crucial steps, leading to financial missteps and complications for their loved ones. Beth Pinsker, a certified financial planner and financial planning columnist at MarketWatch, experienced this firsthand when her mother needed surgery, and she realized they hadn’t taken the necessary step of putting her mother’s power of attorney into effect on her bank account.

This misstep led to complications, including her mother falling behind on long-term care insurance payments, resulting in a $6,800 bill that Pinsker had to front from her own accounts. A 2021 AARP survey found that family caregivers spend an average of $7,242 each year on out-of-pocket costs, and Pinsker’s experience put her over that amount within just one month.

Estate Planning Mistakes to Avoid

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, leaving those individuals more susceptible to scams and financial mistakes.

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, as seen in the case of Prince, who made news headlines for not having a will.

The Importance of Early Estate Planning

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.

For example, parents cannot make a doctor’s appointment on behalf of a child who is over 18 without a health-care proxy. 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.

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. Getting the health-care proxy and the power of attorney is a virtually costless five minutes of your time, Pinsker said.

Limitations of Estate Planning Documents

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.”

Conclusion

Pinsker’s experience and expertise emphasize the importance of estate planning and the potential consequences of neglecting it. By taking the necessary steps and having the right documents in place, individuals can make it easier for their loved ones to help them in times of need.

Read more about estate planning and how to avoid common mistakes Here

Smart Tip for Readers

Take a few minutes to review and update your estate planning documents, including your will, power of attorney, and health-care proxy, to ensure they reflect your current wishes and circumstances. This simple step can help prevent unnecessary complications and costs for your loved ones in the future.