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Managing Your Money
Is it time to make plans for your parents?
May 2005
Your parents – in the not too distant future, may need to rely on you as you once depended on them.
Most of today's Baby Boomers can expect to live healthy lives well into their eighties and beyond. But, as they age, the potential for a stroke, heart attack, mental illness like senile dementia and Alzheimer's, increases dramatically. By developing a strong financial plan now, as well as setting in place legal mechanisms for the responsible administration of your parents' finances, you can ensure they'll get the needed and costly medical, home or institutional care without eroding your family finances, especially if they should become unable to make their own decisions.
The key is to begin planning now while your parents are in good health. When a crisis occurs and emotions run high, it's very difficult to make good decisions – and it may be too late to save the family finances in the face of costly medical, home or institutional care. So, even if it's difficult to broach the subject, do it now! You may discover your parents have been waiting for you to take the first step. And, speaking of steps, here are a few to get you started:
Assemble a complete picture of your parents' financial situation:
Income – where do your parents derive their income, and do any conditions apply? For example, a deceased spouse's Canada Pension Plan benefits drop by 40 per cent when paid to the survivor, and company pension plans may have strict limits on the amount and duration of income to a surviving spouse.
Assets – be sure your parents have designated beneficiaries for their registered investments and insurance. When the beneficiary of an RRSP or RRIF is a surviving spouse, it may be possible to defer taxation until the death of the second spouse. If there are other beneficiaries, the estate will likely have to pay taxes. Seek appropriate tax-reduction strategies.
Expenses – identify all your parents' current expenses and determine whether their income (along with any government aid) will be sufficient to cover projected home or personal care costs that may escalate with age. If you discover shortfalls, investigate strategies for addressing them.
Insurance – do your parents have extended health care plans? If not, should they enrol? Are critical illness or long-term care insurance good options for them?
Get your parents' legal life in order:
Will – about 50 per cent of Canadians don't have wills, meaning unnecessary taxes may be payable upon their death, there is an increased potential for contentious litigation, and the very real possibility that their wishes won't be taken into account. Be sure both parents have up-to-date wills.
Executor - designate a Personal Representative (sometimes called an executor or liquidator in Quebec ) in their wills. This is the person (or trust company) who is responsible for winding up their affairs and distributing assets and bequests.
Enduring power of attorney – gives a designated person the power to make financial decisions on each parent's behalf, if that parent becomes incapacitated.
Living will – (sometimes called a health directive and not valid in all provinces) provides explicit directions about the personal and medical care to be provided for each parent should they become incapacitated.
Know where everything is:
If you are your parents' Personal Representative, be sure you know the location of their wills and other legal papers, as well as the location and content of their bank accounts and safety deposit boxes.
There are many other financial and estate planning strategies available to your parents as they age. A financial advisor and lawyer can help you sort out the complexities and may also ease the awkwardness by bringing an independent, third-party perspective to your intergenerational discussions.
This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.
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