Tips on helping elderly mother manage her finances

Power of attorney, beneficiary designations, GIS application among practical steps

At 87, mom relies on her daughter, Carol, for help with household chores and managing her money. Mom gave Carol her power of attorney. Carol has been helping to simplify mom’s finances.

SIMPLIFY

Carol no longer has to go to the bank to deposit cheques for mom. Carol filled in the forms for Service Canada and the Canada Revenue Agency (CRA) to set up ‘direct deposit.’ All of mom’s monthly Old Age Security (OAS) and Canada Pension Plan (CPP) benefits, quarterly GST credit cheques and income tax refunds are deposited electronically into mom’s bank account.

Mom signed a T1013 form authorizing Carol to be her representative, including online access to My Account to check on CRA payments and refunds. All of mom’s postal correspondence from Service Canada and CRA goes to Carol’s address.

Carol helped mom consolidate three registered retirement income funds into one $100,000 RRIF.

Giving Carol power of attorney was smarter than naming Carol as joint owner of bank and investment accounts.

TFSA

In January this year, Carol helped mom start a tax-free savings account (TFSA). Mom deposited $52,000 after a couple of GICs came due. Having a TFSA means no T5 slips to report next year.

Mom designated her three daughters as TFSA beneficiaries to reduce the probate costs for settling her estate. That is actually simpler than registering GICs in joint names.

TAX PLANNING

Carol wonders if mom should deliberately drain her RRIF savings in stages over the next three or four years. Increasing mom’s annual taxable income to $45,916 takes advantage of her low tax bracket and rising medical expenses.

Once mom’s RRIF has been used up, maybe mom’s income would drop below the Guaranteed Income Supplement (GIS) cut-off of $24,486 (including OAS). They will definitely apply for GIS anyway when mom starts taking tax-free withdrawals from her TFSA.

DISABILITY TAX CREDIT

Mom uses a cane for walking and has some memory issues. Carol had the T2201 tax form for the Disability Tax Credit (DTC) completed by mom’s doctor. If the CRA approves her DTC application, mom can save about $2,258 per year on her tax return (using Saskatchewan tax rates).

RETIREMENT HOME

Carol has discussed the idea of moving mom into a retirement home that provides meal preparation, housekeeping and laundry services. The high cost of the rent is a deterrent. However, once mom is eligible for the DTC, about one-third of the retirement home rent would be considered ‘attendant care,’ which mom could claim as a medical expense.

TESTAMENTARY TRUST

Mom is the income beneficiary of a testamentary trust established by her late husband to hold farmland. Mom receives $10,000 farm rent each year. Starting in 2016, the trust has been allocating the rental income to mom who pays tax at 26 per cent and claims lots of medical expenses. They want to avoid the trust’s flat 48 per cent tax rate. However, Carol wonders if the rent should actually be taxed on the trust’s annual T3 return anyway since it might keep mom eligible for GIS.

They might wind up the trust because of the high cost of preparing annual T3 tax returns. Selling the farmland is another option they might consider to pay for mom’s long term care since it qualifies for the capital gains exemption. However, the trust simplifies estate planning and avoids probate costs when the farmland title passes to Carol and her sisters at mom’s death.

If mom does qualify for the DTC they would keep the trust because it could become a ‘qualified disability trust,’ which would pay tax at the low-bracket rate of 26 per cent.

Terry McBride, a member of Advocis, works with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James Ltd. Information is from sources believed reliable but cannot be guaranteed. This is provided for information only. We recommend that clients seek independent advice from a professional adviser on tax-related matters. Securities offered through Raymond James Ltd., member of the Canadian Investor Protection Fund. Insurance services offered through Raymond James Financial Planning Ltd., not a member of the Canadian Investor Protection Fund.