Lifestyle | A fall, then everything collapses

Victim of a fall, unfit, an old lady has just been admitted to a CHSLD. Can her daughter, should she, sell her condo?

The situation

Monica*’s mother had a fall last July. Everything then fell apart. With a fractured hip, the 88-year-old woman, who also has dementia, was hospitalized for six weeks.

“From there, they applied for permanent accommodation because she couldn’t go home,” says Monica. She was admitted to a CHSLD.

The old lady — let’s call her Luisa — had previously lived in a condo she owned.

“We are just two children, we were now wondering what to do, continues Monica. Should you rent or sell your condo? »

“If we sell the condo, which is not in our name, we would have to do all the procedure to have an incapacity mandate homologated that she made in October 2021.”

The mandate, signed before a notary, is not homologated.

“I think that if the mandate is not approved by a judge, we cannot proceed with the sale. So it needs to be approved. To have it approved, I think we have to go to a social worker and a doctor who will establish that my mother is no longer able to make her decisions. It can be long! »

If renting proves preferable, it’s still Monica and her brother who will have to find a tenant and get him to sign a lease.

“Do we have the right to make a lease? The condo is in his name. »

While cleaning up her mother’s papers, Monica found an old power of attorney in her name dated 1999, which she had forgotten existed.

“I don’t know if it’s still valid,” she adds. I might be able to rent with that. »

In any case, it will be necessary to sell the apartment after the death of his mother.

The condo, which paid around $250,000 in 2010, is mortgage free. Monica estimates its current value at around $400,000.

“Since the condo would no longer be his principal residence, would we, or the estate, be taxed? There is a whole question mark on this level. »

But whether the condo is sold or rented, it will take many months to clean the apartment and then find a buyer or a tenant.

In the meantime, Luisa still has to pay the expenses of the condo (insurance, electricity, condo fees, property tax), which amount to $536 per month. She also pays a monthly payment of $277 for a prearranged funeral contract that binds her for three years. Total: $813 per month.

Luisa receives only the QPP pension and the Old Age Security (PSV) benefit increased by the Guaranteed Income Supplement (GIS). With the GST rebate, his income totals $2,101.

“The CHSLD charges him $2,019 per month, the maximum,” notes Monica. Should I apply for an exemption until the condo is rented if this is the case? »

Several questions, several uncertainties. “We don’t know who to contact. »

The answer

“Whether the mandate is signed before witnesses or before a notary, there is no escaping the approval procedure,” notes notary and tax specialist Patricia Besner, director of financial, tax and estate planning at Desjardins Wealth Management.

The financial planner confirms Monica’s suspicions: “The delays, currently, can be 9 to 12 months. »

It takes six months to prepare the application, collect all the documents and obtain the medical and psychosocial assessments that will confirm Luisa’s incapacity. The Court’s decision will be rendered three to six months after the application is filed.

Proxy

While waiting for this decision, could Monica use the power of attorney signed in 1999? With a power of attorney, a suitable person, therefore in possession of his intellectual faculties, authorizes a trusted person to represent him for certain administrative acts.

In principle, Monica could not use it to sell or rent her mother’s condo. But “it’s not because it dates from 1999”, specifies M^e Besner. “As Luisa is incapacitated and Monica knows it, she can no longer act on power of attorney. The validity of the power of attorney ceases at the time of incapacity since the principal is no longer in a position to revoke it. »

There is, however, a small opening. An article of the Civil Code indicates that between the filing of the application for homologation of the protection mandate and the court’s decision, a representative authorized by a power of attorney could take specific steps on behalf of the mandator.

This is probably the case with Monica.

She therefore has an advantage in quickly launching the approval process and filing the documents with the court, “because she will then be able to make the decision to rent or sell the condo”.

The notary points out in passing that the An Act to better protect people in vulnerable situationswhich will come into force on 1^er November 2022, will allow temporary representation. A relative of the vulnerable person may become their temporary representative, while the specific act for which they have been designated is carried out.

Rent or sell?

Rent or sell Luisa’s condo? Patricia Besner puts forward a few points for reflection.

Renting, insofar as the rent is higher than the costs, would bring additional income to Luisa. Over time, there is a good chance that the value of the property will increase further.

“On the other hand, we must not forget that the current condo fees could be called upon to increase, argues the notary-tax specialist. There may be special contributions. »

In addition, it will be necessary to check whether the declaration of co-ownership constrains or prohibits the rental.

In addition, when the time comes to sell the condo, the future owner must respect the rights of the tenant in place, in particular the rules for repossession of housing. “It can be a challenge to find a buyer,” says M^e Besner.

Rental and taxation

Another subtlety: when a principal residence changes use to become rental property, the tax authorities consider that there is therefore a deemed disposition at fair market value.

“Luisa is deemed to sell her condo the year we start renting it,” explains the notary. Who says deemed sale theoretically says capital gain. »

Fortunately, for each year the property has been used as a principal residence, the capital gain realized on the property is exempt from tax. This would be the case of Luisa’s condo between the acquisition in 2010 and its move to a CHSLD in 2022.

The capital gain realized in subsequent years is subject to taxation.

However, in the case of a change of use to rental property, a tax provision – yet another! — allows you to apply for an extension of the principal residence exemption for a maximum of four years.

This request is made in a letter attached to the tax return for the year in which the change of use took place.

And since the tax authorities always grant an additional year in the calculation of the main residence exemption, Luisa could thus add five years to her exemption period.

Assuming that the condo is sold in 2029 with a capital gain of $200,000 since the acquisition in 2010, the capital gain could not be exempt for 2 years out of 20, i.e. for 10% of this $200,000.

Sale and death

Anyway, the property will be sold, sooner or later.

If Luisa still owns her condo at the time of her death, whether rented or not, there will be a deemed disposition for tax purposes. The eventual taxable capital gain will be taken into account in his final income tax return.

“On death, we will do Luisa’s taxes, and if there is a taxable capital gain, it is the estate that will pay, explains Patricia Besner. The children will receive the inheritance net of taxes. »

The difficult period

Currently, Luisa’s income is just enough to cover her $2019 contribution to the CHSLD.

A reduction seems unlikely, as the value of the property exceeds the authorized ceiling.

To circumvent this obstacle, could Luisa donate her property to her children during her lifetime? “It would not be a solution for Monica and her brother, because their mother is unfit, notes our adviser. As proxies, they cannot make such a gift in the name of the person they represent. »

Until the condo issue is settled by sale or lease, Luisa will still have to pay the ownership and maintenance costs. Adding in the funeral prearrangements, his budget deficit currently stands at around $800 per month.

“If Monica and her brother have to advance the sums to pay the condominium fees and the additional expenses that Luisa cannot afford because she has no additional savings, they will be able to be reimbursed once the mandate is homologated, or at least after filing the application for approval. »

However, funds will have to be available, either because the rental will have started to provide sufficient income, or because the property will have been sold. In this respect, the sale may offer more guarantees — and fewer management worries for the agents.

While waiting for this outcome, Patricia Besner delicately opens another door.

“If you take a shared room in a CHSLD, the monthly payment is lower. For a two-bed room, the monthly payment is $1686 and for a room with three or more beds, $1256. That’s about the $800 that Luisa is missing. It could be a temporary solution. »

* Although the case highlighted in this section is real, the first names used are fictitious.