Posted at 6:00 a.m.
The situation
Suzanne* and Robert* built their intergenerational home seven years ago, “after the death of [leur] “says Suzanne.
“We talked about it with her. She died of cancer within three months. We decided to do the project with his daughter. »
Let’s call her Julie.
The couple then sold their property, acquired land and had a single-storey house built, in which they occupy a four-room apartment in the semi-basement. The granddaughter, her spouse and their two teenagers live on the ground floor.
The house respects “all the legal context for intergenerational houses”, assures Suzanne. “We have a connecting door, and all that. »
Suzanne and Robert enjoy a small private terrace, and the two households share the yard and the double garage. Their granddaughter “does a lot of things for [eux] says Suzanne. She does not pay rent, but pays property tax, electricity and internet and television bills.
“It’s still a big house and it’s starting to get heavy, because my husband is starting to have cognitive loss,” she adds. He does almost nothing. I have to take care of everything. Our children come when they can, but my granddaughter helps the most. »
Married for 62 years, Suzanne and Robert are 83 and 84 years old.
They are thinking of ceding the property in equal shares to their two boys and their granddaughter: “So that we can continue to live here, with our pensions, and that they manage everything else. It’s a way of continuing to live with us. We are still comfortable and safe with them, rather than being in residence. »
“The other problem is that we still owe a little money on this house, by line of credit,” she adds.
The proceeds from the sale of their previous home had not fully covered the cost of the new property. They took out a home equity line of credit for $210,000 seven years ago, of which there is still $162,000 to be paid. The monthly payment is $1044. “We have no problem paying for the house,” Suzanne informs.
They don’t know its current value, but the 2015 municipal assessment put it at $500,000.
The will already indicates that their granddaughter and her two uncles will be heirs in equal shares. “This house will be theirs anyway after we die,” she said.
Their granddaughter is 42 years old. Their sons are in their late sixties.
We would like to give this house equally between our granddaughter and our two boys, and that we stay at home. That’s our big difficulty: we don’t know how to do it legally, so that everyone is happy.
Susanna
Numbers
Suzanne, 83 years old
- Retirement pension: $750/month
- RRIF withdrawal: $1,400/year
- QPP: $664/month
- PSV: $7700/year
Savings:
- TFSA: $8,000
- RRIF: approximately $17,000
Robert, 84 years old
- Retirement pension: $800/month
- RRIF withdrawal: $2,000/year
- QPP: $1017/month
- PSV: $7700/year
Savings:
- TFSA: $40,000
- RRIF: approximately $30,000
Property value: $500,000 according to the 2015 municipal assessment Mortgage balance: $162,000
The answer
PHOTO FRANÇOIS ROY, LA PRESSE ARCHIVES
Guylaine Lafleur, financial planner at Bachand Lafleur Groupe conseil
We would like to help more, to bring out a solution which, if not magical, would iron out the main difficulties.
But as expressed by the notary and financial planner Guylaine Lafleur, of the firm Bachand Lafleur Groupe conseil, “it is difficult to fit a square into a circle”.
Let’s see the circle, first of all.
In the absence of a more precise valuation, and for the purposes of her reflection, our expert gives Suzanne’s property a value of $800,000.
After subtracting the mortgage balance of $162,000, the current net worth would be around $640,000. If Suzanne shared it today between her two sons and her granddaughter, each would receive some $213,000.
Transfer today
The couple could now transfer their house to their granddaughter.
“She would have to assume the debt of $170,000,” says the notary.
The two-thirds she owed to her uncles “could be secured by a second mortgage on the house, with an obligation to repay her uncles after the death of the grandparents”.
The sum would be due to the estate, which would take into account that Julie had already received a third of the house.
A bequest upon death
The transfer could also be postponed upon the death of the last surviving spouse – presumably Suzanne, given her husband’s state of health. The house would be bequeathed to their granddaughter, “it being up to her to assume the remaining debt and to give each of her two uncles a third of the net value of the house”, formulates the notary.
The square
It is here that the problem of the square arises: whether the transfer takes place now or at the last death, does Julie have the means?
Guylaine Lafleur estimates that in property tax, electricity and Internet and television costs, she already pays around $1,000 per month. “I understand from their comments that their granddaughter could not afford to pay more,” she says.
For her uncles to pocket their share, she would have to obtain a loan of $588,000 or agree with them on a repayment schedule.
In any case, she should repay at least $2800 per month.
In addition, Suzanne told us that Julie’s current spouse, who is not the father of her children, shares current expenses like a roommate. The sole owner, Julie would be the only one to make the mortgage payments, even if her spouse eventually paid her rent.
“If she can’t pay more than $1,000 a month, she won’t be able to take on the debt,” says our advisor.
“If she inherits the house and there are no other assets in the estate, she won’t be able to keep it. »
Does the couple have other savings?
Between them, Suzanne and Robert hold $48,000 in TFSAs, and about the same in RRIFs. For the latter, however, it is necessary to take into account the tax burden, because the deceased will be deemed to have withdrawn at death all the sums held, which are then added to his taxable income.
After distribution among the heirs, Julie would collect at best $30,000, which would be insufficient to substantially reduce her mortgage debt.
“There are different formulas possible, but it’s difficult, because with any formula that asks him to pay more than currently, it does not happen,” notes Guylaine Lafleur.
If Suzanne and Robert want to stay in their house and can afford to pay the $1,044 monthly mortgage payment, the best thing is to maintain the status quo. And when they die, the house will be sold, the granddaughter will inherit a third of the estate and she can use it as an initial deposit on a smaller house.
Guylaine Lafleur, financial planner
But there is still an obstacle.
“If, one day, one of the two has to be placed in a CHSLD and there are amounts to be paid, they may no longer arrive. »
The couple may then be able to invoke involuntary separation, a tax measure that allows spouses to be considered single if one of them must be accommodated in a CHSLD.
Everyone can thus improve certain tax credits and perhaps begin to receive the Guaranteed Income Supplement, if the income ceiling is respected (the Old Age Security pension is not considered), i.e. $19,656 to the current time for single, widowed or divorced people.
If Suzanne is certain that her house will be sold when she moves out or when she dies, she could also use a reverse mortgage to help her live there a little longer. An avenue to weigh with the greatest attention, however, which will reduce the sums bequeathed to his three heirs…
* Although the case highlighted in this section is real, the first names used are fictitious.
Are you planning a project that requires a wise use of your money? Do you have financial problems?