Guide to Taking Over Responsibility for a Parent’s Finances
The Canadian population is aging. Additional responsibility is being placed on children to provide support and advocacy for aging parents. People are living longer, and their retirement may last many years, putting a strain on finances. It is becoming more common for older Canadian's to outlive their resources.
An interesting CBC poll in 2017 learned that 90% of adult children with parents over the age of 65 feel it is important to know how they would like their finances and care managed if they find themselves unable to do so. Only 38% have had the conversation. Discussing the subject while your parent is well, despite being uncomfortable, is so much better than being totally unprepared to take over when a crisis occurs. If your parent has a fall or sudden illness you may need to step into the void. Knowing what is expected of you can ease the transition.
Knowing what your parent wants is an important first step. You don’t need to know all the details of their income or assets at this stage.
Provided it is their wish for you to be the person to take over their affairs should it become necessary, it is important to have the documentation in place for this to happen. Powers of Attorney cannot be signed by your parent should they lose their mental capacity. If a lawyer feels that their understanding of the documents they are signing is diminished, they are required to seek a medical assessment that the person executing the documents (your parent in this case) has legal capacity to do so.
Documentation should be prepared as soon as the discussion with your parent has taken place. Time has a way of slipping away from us. By the time you realize how important it is, it could be too late.
Contact us if your parent does not have up to date Powers of Attorney or a Will in place. Treat the documents like an insurance policy that you hope to never need.
Steps to take when you are required to take over a parent’s finances:
Learn about your parent’s income and expenses. Look at how they are meeting their expenses. If there is a shortfall each month, where the money being drawn from and is their current lifestyle sustainable;
If they have sufficient funds to meet their current needs but it is anticipated that personal care is now going to be necessary, it is important to review their total financial circumstances knowing the cost of expected services. Currently, the cost of in home care costs between $20 to $40 per hour for a personal support worker. Nursing care is more expensive. Full time in home care at $20 per hour, (the low end) would cost $14,500.00 per month. If that is not sustainable, alternatives need to be found;
Do you need to draw down investment and retirement savings?
If your parent owns a home, is it to be sold or mortgaged?
Are you able to provide care to your parent in their home?
Are you and your family prepared to provide care by moving your parent into your home?
If you cannot care for your parent, is there sufficient income being generated from their pension and investments to fund an assisted living or long-term care facility?
Are members of your family able to contribute to your parent’s care or will you be meeting the gap between their income and the cost of care personally?
Do you need to apply for long-term care? If the plan is to apply for government subsidized long term care, be aware that there is a long wait list.
Determine if there is any insurance coverage available for services, medical care or other needs;
Make sure that your parents tax filings are up to date. Many services for seniors are based on their annual income and will not be paid if their taxes are not up to date.
If you need to communicate with CRA your parent can sign a form T1013 to authorize CRA to speak to you. If your parent has lost capacity to sign authorizations, a notarial copy of a Power of Attorney for Property should be provided to CRA.
Consider application for a Disability Tax Credit if your parent is suffering from a severe mental or physical impairment. This could save over $2,500 annually in tax obligation.
There are many tax deductions available for medical expenses, caregiver expenses and medically necessary home modifications. Review your parents needs against possible deductions. Obtain receipts for all services;
Consider the tax consequences of selling your parents assets to fund their care before taking any steps. Obtaining professional advice is recommended as there are tax consequences to redeeming investments and selling property.
Banks will need authorization to deal with you regarding your parent’s affairs. Provide a notarial copy of the Power of Attorney for Property to each bank, investment company, credit union or other organization with whom your parent has dealings. You will need to review bank and investment statements and tax returns to obtain this information. Even if your parent can tell you most of the information it is a good idea to check as many small investments may have been made years previously or if they were not the primary account holder, simply forgotten.
It will be necessary for you to ensure that their expenses are paid. It is your obligation as their (Power of) Attorney to account for their money. It is their money, not yours and should not be mixed in with your income and bills. Maintaining accounts is the most onerous part of being financially responsible for a parent. Start a system by which you keep track of their income and expenses. This could be a spread sheet or an accounting program, dependent on how complicated their finances are.
While not required, it may be beneficial to have a discussion with your siblings and other family members to lay out how your parent’s finances are to be managed. There will be plenty of unsolicited advice but if a property has to be sold to fund future care, better to explain that to family members in advance of the FOR SALE sign being put on the lawn. Being prepared with a financial plan should stop the worry they may have that you are selling the house to pocket the money or other speculation.
If a parent is still of sound mind, confirm with them that their beneficiary designations in their Will and any insurance policy still reflect how they want their assets distributed.
Start the conversation. If you have a parent, it is important for them to know that if they appoint a Power of Attorney it does not become effective until they want it or need it to be.
Every situation is different. Contact us if you need help with yours.