Lifestyle | help me help them

Danielle* wants to help her elderly former tenants get out of the budget deficits they have been facing since one lives in a residence and the other in a CHSLD.

Marc Tison
The Press

The situation

Henry* and Helen* had formerly been his tenants before they belatedly purchased a small house in the Vaudreuil region. “Over the years, they have become my friends,” says Danielle. I had a duplex. I was not very manual. He was and he helped me with a lot of things. They were extremely generous people with me. And there, it’s up to me to give them a little. »

Henry is 85 years old, Helen is a year younger.

“He worked until he was 75 for an electronics company,” continues Danielle. At 75, they thanked him. They could no longer afford the house they lived in. Just the taxes, it was $4000. They started accumulating debts. »

Last September, they called Danielle for help. Physically and financially unable to live in their home any longer, they were forced to sell it.

Danielle helped them clean the house and their accounts. “They owed $30,000. And they didn’t have a penny. »

The property sold for $405,000. After paying expenses and debts, they pocketed a capital of $175,000.

“I moved them to a nice seniors’ residence in Île-Perrot. »

With the Régie des rentes du Québec (RRQ) and the Old Age Security pension (PSV), his only income, Henry receives $1,800 a month, an amount that was enough to pay the rent of $1,650 ($1,850 less a $100 credit for each).

Helen’s $1,000 government pension covered food and other modest monthly expenses.

Alas, they had been settled for barely two months when a stroke forced Henry to move to a CHSLD.

His contribution to the costs of the CHSLD amounts to $1,686, which is almost all of his pension.

Because Henry no longer lives in the seniors’ residence (RPA), the $100 credit allocated to him disappeared as well, bringing Helen’s rent to $1,750. But now she only relies on her $1,000 per month benefit for all of her expenses. Food alone costs him $500 a month.

“I calculated that he is short $18,000 a year,” notes Danielle.

The monthly budget shortfall must be made up by tapping into the $175,000 asset, which currently sits in Helen’s personal account with no return.

“The CHSLD explained to me that they could lower the rent if they saw that their income was too low, points out Danielle. But for that, Helen has to empty her investment, ”she believes she understands.

The CHSLD also informed her that the couple could plead involuntary separation, a tax measure which considers spouses as single if one of them must be accommodated independently of the other.

“I just filled out the forms and sent them in,” says Danielle. But I don’t know how much it will give him. Are they going to take into consideration that she has money in her bank account? I’ve no idea. I swim in nothingness. »

Helen’s financial situation will improve upon Henry’s death, when she will receive the surviving spouse’s share of her QPP pensions. But when ?

In the meantime, everything rests on its assets.

“How can I help him maximize his income so that he doesn’t quickly disburse his remaining $175,000? asks Danielle.

“What worries me is: where do I start? What should I do or not? »

“I want everything to be okay. I wouldn’t want her to end up in misery. »

The answer

Danielle doesn’t know where to start.

Here is the lead suggested to him by financial planner Émile Khayat, Senior Regional Director, Quebec and South Shore, at TD Wealth Management.

First step: first understand the monthly cash flows, to deduce how to optimize federal benefits.

Good news, Danielle has already taken an excellent initiative by submitting a request for involuntary separation. “This financial support mechanism offered by the government allows people aged 65 and over, married or de facto spouses, but who have to live apart for reasons beyond their control (medical or economic), to access certain financial benefits” , recalls Émile Khayat.

For Henry and Helen, the first benefit would be access, for each, to the Guaranteed Income Supplement (GIS) calculated according to their own income, rather than that of the couple.

Planner estimates show that Henry would see his combined OAS and GIS benefit increase by $144 per month. For Helen, the profit would be $716.

“A total of $860 which will definitely make a difference in their monthly budget,” he says.

The annual budget deficit of $18,000 is thus reduced to $10,320.

An involuntary separation would probably increase the solidarity tax credit, which will also be calculated on the basis of the status of a person living alone.

“Danielle will be able to ensure that the calculations of the GIS will be done retroactively over 11 months, once the involuntary separation has been accepted and implemented by the government”, advises our adviser.

The case of the CHSLD

How could Henry reduce his contribution to his accommodation in a CHSLD? asks Danielle.

“Incomes would have to be significantly lower than they already are to be entitled to a certain reduction,” notes Émile Khayat.

“I went to do simulations on the calculator for CHSLD fees. I simulated several things: if they had more or less savings, more or less income…”

Henry’s contribution will not change, up or down, if he had more savings or a TFSA in his name. However, it would be reduced in the event of a decrease in his retirement income, which is essentially made up of QPP and PSV pensions.

“On the contrary, we are looking for him to earn more, to help his spouse,” notes our adviser.

“It is better to focus on other elements to optimize the financial situation. »

Especially on that $175,000 sitting in Helen’s account.

The $175,000

Our planner recommends that each spouse open a tax-free savings account (TFSA) and invest $81,500 in it, for a total of $163,000. An emergency reserve of $12,000 would be kept in a high-interest savings account.

TFSA withdrawals “will not affect GIS benefits and are non-taxable,” he points out.

This nest egg would allow Helen to pay off her budget deficit of $10,300 each year.

Henry’s income from RRQ and PSV, very little taxed, will be enough to pay for the CHSLD. “Those are sort of his only expenses. Everything is included, as far as his living expenses are concerned. »

Émile Khayat tested this scenario with extremely cautious assumptions: an average long-term inflation of 2.5% (the norm is 2%) and a prudent return of 2.37% — thus a gradual loss of power of purchase.

When Henry dies, whom the planner carefully plans at age 95, his TFSA is transferred to Helen.

In the current situation and with these parameters, the couple’s savings are running out when Helen and Henry approach the age of 94. In the voluntary separation scenario, Helen retains sufficient funds until her death. Even centenary, she could still bequeath a small nest egg.

“This is particularly reassuring in the event that she has to pay for certain additional and unforeseen health care”, formulates the planner.

He recalls in passing the importance of establishing general powers of attorney and protection mandates in the event of incapacity.

He also underlines the existence of a less well-known status, that of “person of trust”.

“It’s an official status that now exists in the management of investment or planning accounts,” he informs. A financial advisor or planner asks his client to name someone who is a trustworthy person. »

This person, who has neither rights nor powers of attorney over the account, may be consulted if the adviser has doubts about the state of health or lucidity of his client.

“If, for example, Helen had a medical problem or disability herself later on and we didn’t know about it, that would allow us to call Danielle and check with her that everything is fine. »

If she wishes, of course.

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

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