Financial strategies for parents with parents

The Sandwich Generation3

Even the most well adjusted

family may find sorting out aging

parents’ finances can be a highly

sensitive issue, especially when

parents themselves are reluctant

to face the necessity. But experts

point out the worst possible way to

approach these matters is to wait

until a financial or health crisis.

SPECIAL REPORT

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Sandwich Generation—financial strategies for parents with parents ©Investors Group Inc. 2010. MP1154 (03/2010)

to more effectively achieve their goals.

As long as they remain mentallycompetent to do so, your parentsshould review existing wills periodi-cally, to determine if the documentsrequire updating due to changed situations or circumstances.

Trusts

Trusts are useful in many situations:

Safeguarding assets for minors—Parents can set up a testamentarytrust to specify when children shouldreceive their portion of the estate,and in what amounts.

Long-term care for dependants withspecial needs—A testamentary trustcan provide for dependants who havespecial needs and at the same time preserve any government assistance they may receive.

In second marriage situations—If your parents have remarried, a trustcan provide payments to a currentspouse throughout his or her lifetime,

while preserving the assets for chil-dren from a previous marriage.

Income-splitting—Testamentarytrusts are taxed at the same graduatedmarginal rates that apply to individu-als. Income earned in the testamen-tary trust can be taxed at the lowertrust tax rates and then distributed tobeneficiaries as tax paid capital.

Your Needs Also Matter

As you work to help your parentsensure their future financial needs are met, remember your needs are also important. We will work to help you keep your financial balance,while setting in place strategies toensure your parents the comfort and security they deserve.

If not, should they be enrolling in such plans?

It’s important to note insurance policies your parents may have andwhether or not they are adequate.You may wish to explore critical ill-ness insurance which pays a lumpsum in the event of certain critical illnesses to cover future costs ofextended medical or personal care.Often, adult children buy insurancefor parents. Premiums may be morecostly, but illnesses covered can bedebilitating for a lengthy period.

Put Legal Documents in Order

Enduring Power of Attorneys—Through an enduring power of attorney parents can appoint a per-son or persons to make decisionsconcerning property and financialaffairs. A power of attorney can begeneral in application or limited todealing with certain assets or moneyin particular accounts. Enduringpowers of attorney that are general in application are often betweenspouses, and make handling familyfinances much easier should one ofthem become incapacitated. Powersof attorney limited to specificaccounts are often used to facilitatethe payment of bills.

The enduring power of attorneytakes effect as soon as the documentis signed, and can continue when aperson becomes mentally incompe-tent, provided a clause to that effectis inserted in the document. Anotheralternative is the springing power ofattorney, where the authority grantedunder the power of attorney does notbecome effective until the personwho granted it becomes mentallyincompetent.

It may also be advisable to assign a contingent or secondary power ofattorney, perhaps to a trusted adult

child, so that if both parents becomementally incompetent, a backup person is ready to step in.

Committeeship—If power of attorneyhas not been assigned and mentalincompetence becomes an issue,committeeship by a responsible adultmust be sought through the courts.The process costs time and money,and the province’s public trustee may have to step in while the issue is resolved.

Personal Care Decisions and HealthCare Directives—Many provincesauthorize the use of documents thatappoint someone to make personalcare decisions when you are not ableto do so. Such documents can also be used to give instructions on condi-tions under which an individualwould not want invasive or “heroicmeasure” medical care to continue.

Should your parents be consideringsuch documents, they will wantextremely careful wording to ensureboth legal and medical terminologyis accurate. Your parents should con-sult a lawyer and a physician, andrevisit the document periodically toensure their feelings haven’t changedand that the wording remains med-ically valid. Alternately, they mightleave such decisions to whomeverhas power of attorney, after providingguidelines to that person, but thepower of attorney itself may not besufficient to provide the authority toothers to make health-care decisions.

Wills—About fifty percent ofCanadians don’t have wills. Yet with-out it, legal fees can mount if dispo-sition is contentious, the deceasedperson’s wishes may not be takeninto account, and survivors have todeal with the situation while copingwith grief.

Holograph wills, created in the per-

son’s own handwriting, dated, andsigned, are legal in some provinces.But holograph wills often fail toexpress intentions in adequate legalterms and the courts may not interpretthe will as intended. Do-it-yourself willkits have become popular, but cannotaddress points unique to your parents’situation. Such kits are unlikely tomaximize inheritances your parentsmay want kept secure for heirs.

Only sound financial, legal andaccounting advice will accomplishthat goal. We can help your parentsdetermine tax liabilities flowing fromtheir estate, and can suggest options

Gather Information

We can help assemble a clear picture of your parents’ assets, incomesources, and anticipated expenses.

Income—We can help you identifyyour parents’ income sources and anyconditions that apply. For example, a deceased spouse’s Canada PensionPlan benefits drop by 40 per cent to the survivor.

You should record these points as wellas details like location and contentsof bank accounts and safety depositboxes. Our Personal Financial Reviewwill also help tally household expensesand taxes.

Assets—Have your parents designat-ed beneficiaries for their registeredinvestments and insurance? If anRRSP or RRIF’s beneficiary is thesurviving spouse, the funds transferautomatically on the plan owner’sdeath. Whether the beneficiary is theestate or the spouse, it is possible todefer taxation until death of the secondspouse. But if others are beneficiaries,the estate may have to pay tax. Thesecan be complex decisions we can helpsort out.

If one or both parents own a business,you’ll need to determine if they mayconsider selling the business at somepoint. If that is not an option, theyshould have a business successionplan which identifies partners, share-holders, or family members with aninterest in the business. We canreview options and help your parentsmake a choice they and other poten-tially affected co-owners are comfort-able with.

Expenses—First your parents’ exist-ing expenses must be identified, thencontingent expenses considered.Ultimately, one or both may requirehome care or personal care homes.Some provincial health-care systemsmay not provide for care as you wouldwant, and the cost of meeting theirneeds may fall to them—or to you.

If you discover shortfalls are likely, you and/or your parents may exploremore aggressive options. Talk to usabout stategies to handle the finan-cial load.

Insuring Peace of Mind—Do your parents have extended health careinsurance plans? If so, what are the conditions and limitations?

For most of our lives, our parentshave been the ones we’ve turnedto for support, advice, and finan-cial help. But as our parents age,they may need to rely on us as we once did on them. On average,Canadian men now live to 78 yearsof age, women beyond 80. Mostenjoy good health until their mid-70s, when incidence of physical illness increases dramatically,along with chronic mental illness-es. All of these can rob people oftheir abilities to make decisionsand deal with life’s daily routines.

Many of our parents will live longand remain healthy, vibrant people.But developing strong plans nowcan limit future erosion of familyfinances should parents need cost-ly medical, home, or institutionalcare. As well, setting key legalmechanisms in place now willenable our parents’ finances to beresponsibly administered in thefuture, should they become unableto make their own decisions.

ESTATE TRUSTEE—NOT A JOB FOR EVERYONE

In Quebec it’s called the “Liquidator.” In many other provinces it’s the“Executor.” But regardless of what name it goes by, it involves time-consuming responsibilities. Very often parents select one of their adultchildren for the job. Before you accept, be sure you understand that it’smore than an honorary role. You will need to:

3 Determine, locate, and notifybeneficiaries

3 Arrange for burial or cremationand a funeral service

3 Apply for life insurance benefits

3 Prepare an inventory of theestate’s assets and debts

3 Arrange for payment of all debts

3 File an income tax return for the year of death and returns for the estate

3 Administer testamentary trusts

3 Distribute estate assets

BROACHING THE SUBJECT

Ideally, your parents may raisethe topic; perhaps they are onlywaiting for a sign from you thatyou’d be willing to help them settheir affairs in order. They may be unsure where to start or whatto do, and you may need to find a way to broach the subject. For example:

3 When friends or neighbours experience a difficult situation. “I heard about Lillian’s illness,Mom. I’m so sorry—but youknow I wonder sometimeswhat you’d like us to do ifsomething like that happenedto you. Perhaps we should talk about it now.”

3 When you’re arranging your own affairs. “Dad, I’m revisitingmy will now that my financialsituation has changed a bit.How about yours? Should we both do it together?”

3 When you come across writtenmaterial that deals with the subject. “My financial advisor sent me this information, Dad, and it’s really interesting. Wecould go through it together and see where you and mom stand with all this.”