Here’s what to do when you take over a parent’s finances
According to the 2016 census from Statistics Canada, 17 per cent of Canada’s population is over the age of 65. Our senior population will continue to grow, and this will place more responsibility on children to provide various types of support for aging parents.
A 2017 CIBC poll found that 90 per cent of those with parents over the age of 65 feel it is important to have a conversation about how they would like their finances managed should they find themselves unable to do so on their own. However, most children and parents — 62 per cent — have not discussed how to manage their affairs.
Even those who do know what Mom and Dad want may not be very well-versed financially themselves. Surveys frequently show that Canadians have poor financial literacy skills, including those who are confident about their knowledge. I have observed this firsthand with very intelligent, successful people who have sat in my office over the years who are very good at whatever it is they do for a living, but do not understand personal finance.
While this summary will hardly be exhaustive, I am going to touch on some of the key areas to address in anticipation of or in response to taking over a parent’s finances. Let us assume that there is either an outright requirement for you take over their affairs due to health problems or that there is an explicit request made by them to you to do so.
CASH FLOW
Take a close look at your parent’s income and expenses to make sure you know how they are funding their lifestyle and whether it is sustainable. If your involvement in their financial affairs is due to a physical or mental impairment that could result in higher medical or care costs, it is important to get a sense of what those future costs could be and how best to fund them.
You should talk about whether care in the home or care in a facility is preferable. If a home will not be sold, it may impact how you draw down on their investments, borrow against their home or provide support yourself.
Personal care workers can cost $20 to $35 per hour and registered nurses can cost $30 to $100. There is typically a minimum number of hours required per visit. Full-time care can cost $2,000 to $10,000 per month — or more.
If there are insufficient financial resources to fund future expenses, it is important to come up with a game plan early. The plan may be for family members to help pay for care costs or for a parent move in with you or a sibling. And if the best alternative is for a parent to eventually move into a government subsidized long-term care facility, it is important to note that wait lists can be long and priority is given to those who need the help the most.
TAX
Make sure your parent’s tax returns are up to date. Some seniors are prone to owing money on their tax filing since neither investment income nor minimum withdrawals from a Registered Retirement Income Fund (RRIF) are required to have tax withheld at source. Some seniors may also be entitled to government benefits that are based on their annual tax filing and will not be paid if a tax return is not filed.
You can have your parent sign a form T1013 to authorize you as their tax representative with the Canada Revenue Agency (CRA).
If your parent has a severe and prolonged physical or mental impairment, they may qualify for the Disability Tax Credit, which could save them up to $2,659 in tax for 2017 depending on their income and their province of residence.
There are other tax deductions and credits related to medical expenses, caregivers or modifications to a home that you should investigate as well. INVESTMENTS
A parent will be able to authorize your involvement with their bank or investment advisor, whether you all take part in discussions, they give you trading authority or you formally take over accounts as power of attorney for property.
The first thing you should do with your parent’s investments is take inventory of what they have in the first place. Statements are a good starting point, but check out past tax returns to see if they had tax slips from companies that are not included in their investment statements.