Lifestyle | How to use contingency compensation

Following the death of her husband from asbestosis, Louise* wonders what she should do with the compensation she will receive.

The situation

Louise, 78, has lived in Abitibi-Témiscamingue for 50 years. Since the death of her husband last April, she has sold her house to move into one of her son’s triplex apartments.

“I’m more reassured to live in the same building as my son,” she says on the phone.

The last two years have been trying for Louise. During the pandemic, Louis-Philippe* started coughing. Once the diagnosis of COVID-19 was eliminated, then that of pneumonia, the doctor found him with lung cancer.

“The doctor immediately saw the presence of asbestosis, she explains, and he advised me to take steps with the CNESST. We wouldn’t have thought of that if the doctor hadn’t referred us. »

“Luckily my four children were there to help me, because it was really very complicated. We met a pulmonologist from the CNESST, then a special committee, while fighting my husband’s cancer. »

Finally, Louis-Philippe received a first indemnity before he died in order to pay for his medication, funeral expenses and other unforeseen expenses related to his situation.

Prior to Louis-Philippe’s death and the sale of the family home, the couple had only $31,000 in Registered Retirement Income Funds (RRIFs). Next April, Louise will receive $115,000.

“I want your advice, because I don’t know what to do with this money,” she says. In fact, I have an idea, but I want to be sure that I will be financially correct if I do what I have in mind. »

Louise says that her mother died at 89 and that she intends to “beat” her by living at least until she is 92. For the next few years, she plans to live in her son’s apartment, which costs her $1,000 a month, all included, and then move to a private residence for seniors (RPA) at $3,500 a month.

“Perhaps I could go there at 83,” she recalls, hesitantly. It’s hard to predict when. I haven’t shopped anything yet, but I think that’s the price in my area. »

She estimates her current monthly cost of living at $2,800, but believes it will increase as she gets older because of the services she will need.

“I would like to give $15,000 to each of my four children during my lifetime,” she reveals. With inflation and the rising cost of living, I think it would be a good time. Do you think I can do this without compromising my financial security? »

Analysis

Antoine Chaume, financial planner and wealth management advisor at Assante Capital Ltée Équipe Major, has developed a few scenarios.

“First of all, before thinking of making donations during one’s lifetime, we must check whether we are able to ensure our financial independence, warns the planner. Because we get along, that’s a lot of money to give all at once. If we don’t plan well or not optimally, we arrive 10 years later and there is not enough money to take care of ourselves. »

Antoine Chaume verified a first basic scenario. Louise continues with the same pace of life, goes to a private residence for seniors at 92 and does not donate during her lifetime. With returns of 3%, a percentage recommended by the Quebec Institute of Financial Planning (IQPF), she will still have $459,000 in her portfolio at the age of 96.

What if Louise decides to donate $60,000 right now divided between her four children? Still on the assumption that she keeps the same cost of living and moves to an RPA at age 92? In this second scenario, she would still have $361,000 at the age of 96, calculates Antoine Chaume.

On the other hand, in the third scenario where Louise decides to go to an RPA in five years, at age 83, things get complicated. She will have exhausted all of her savings at age 95, without making any donations to her children during her lifetime.

“If she wants to achieve her estate goals during her lifetime, she must postpone her entry into an RPA at 85,” says Antoine Chaume. I would even say that the longer she postpones her move to an RPA, the more financial flexibility she has. Each year she lives in her son’s apartment saves her $30,000. It is a very large sum. »

“Moving to an RPA at $3,500 per month is an expensive choice that will almost double your cost of living. As she is in good shape, I recommend that she stay as long as possible at home. If one day she needs home help, she can request it from her CLSC. »

Antoine Chaume also advises Louise to have an incapacity mandate and an up-to-date will. He also suggests that, before making donations, they think about their personal desires. Does she want to travel with her family? Does she have any other projects she could afford to do?

How to optimize your holdings

According to the planner, Louise should build an investment strategy with different types of products: a “wool sock” cashable at any time with a high-interest savings account from a virtual bank, guaranteed investment certificates (GICs) with several maturities, a few secure bonds, whose rates have increased recently, and investments linked to stock markets with guaranteed capital.

When it comes to disbursing assets, Louise must start with RRIFs, because they are added to her other income when filing her tax return. The planner even suggests disbursing more RRIFs than his mandatory annual minimum of $1,600 while making sure to stay below $46,000 in income. If Louise disburses the $31,000 over three years, for example, she could then be entitled to $200 net per month tax-free Guaranteed Income Supplement (GIS).

“You have to be careful, because poor tax planning can mean the loss of important government programs,” emphasizes the planner.

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