Beginning to see your old age come, with the costs related to the CHSLD and its legacies to your offspring, can be a source of many questions and worries. But getting the right information allows you to see clearly and make the right decisions.
Single and only child, Marion* owns a house and a chalet. While her mother is a housewife, her father is retired from the provincial government with a full pension. They also have several investments, including Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs). As they think about their old age, they begin to want to part with their possessions. His mother sold his cottage, and his father his shares of the family land. His parents also plan to transfer their house to him, fully paid for, while continuing to live there and maintain it for as long as possible.
“I think that since they have a lot of assets, they are afraid of having to pay a lot when they are in CHSLD and also that a large part of their assets will go to tax when they die rather than come back to me”, indicates Marion . They don’t know where to start. “I want to avoid waiting and risking having to make decisions quickly that would not be in our best interests,” she adds. But all of that is big for us. We don’t know which professional to turn to. »
Age of Marion’s father: 73
Age of Marion’s mother: 69
Estimated value of Marion’s parents’ house: $400,000
While Marion’s parents have accumulated their wealth all their lives, it’s a very good idea to take the time to think about how they will spend it in their old age and how they will pass it on, according to Marie-Eve McLean , financial planner at Proactif Services Financiers, in Saint-Jean-sur-Richelieu. “These are very important matters and the couple cannot just start liquidating their holdings, because both are still young and will need money to live on for the next few years. »
The first element to demystify is the idea of transferring the family home to Marion. “From a tax point of view, it’s not a good idea,” says Marie-Eve McLean. Only one house per year can benefit from the tax exemption for principal residence and you must live there occasionally. Since this would not be the case for Marion, she would be taxed on the capital gain of her parents’ house when she decided to sell it. »
Worse still, the parents could also have to pay tax by making this donation.
Thus, he would look at the capital gain of the property, therefore the difference between the initial purchase price, adjusted for the costs of certain improvements in the residence, compared to the fair market value of the house. “If the mother declared her cottage as her principal residence for years, that means the house will be considered a secondary residence for those years and the capital gain for that period will be taxed,” she explains.
If the parents keep their home until they move out or until they die, they will benefit from the principal residence tax exemption on the capital gain for all those additional years. “It’s a big deal when you look at how the property values have gone up in the last few years, plus they’re young, so they can stay in the house for another 15 or even 20 years,” says Marie- Eve McLean.
She also points out that even if, for example, the parents sell the house to a stranger, invest the profits in investments that they will then bequeath to Marion, the tax will take its due. “The money they invest in a TFSA [Tax-Free Savings Account], for example, is not taxable if they leave it to Marion, but the income that will accumulate there from the date of death of the last parent will be, explains the financial planner. Then, the amount received when selling the house would exceed their maximum TFSA contribution room, so they would have to invest the rest in non-registered accounts whose income would be taxable each year for the parents. There would also be tax to pay on the appreciation of these investments during withdrawals and at the time of the bequest to Marion, “says the financial planner.
As for the CHSLD, you should know that the amount of the contribution to be paid for housing and food, indexed each year, is $2,080 for a single room in 2023.
“It’s the same price for everyone and it’s a contribution, which means that the real cost is higher and is borne by the government, which also provides the care,” explains Marie-Ève Mc Lean.
On the other hand, people who are not able to pay this amount can opt for a room for two, or three or more. For disadvantaged people, it is also possible to request an exemption or a reassessment of the contribution. It will be determined taking into account the person’s ability to pay by looking at the total of their liquid assets, their monthly income and those of their spouse if they are married or in a civil union.
“But to qualify for an exemption or a reassessment, you really have to have low income,” says the financial planner. Someone who has a pension plan, like Marion’s father, will not be entitled to it. You must also have less than $2500 in cash. And the government can look back two years to verify the value of the heritage. »
While Marion’s parents probably still have many good years ahead of them, Marie-Ève McLean advises them to make a retirement plan, with a payment plan. “They have to make sure they have the cash until they die and if they want to start giving to their daughter while they’re alive, they can plan for it,” she says.
She gives the example of RRSPs and RRIFs. “For sure they have to take the money out gradually, because if they take out all of a sudden, their tax rate will be high because of their other income. But by making a good disbursement plan, they could, for example, take out a little more than they need each year and pay these sums to their daughter. »
And they will have peace of mind. “Who knows, maybe they won’t even go to a CHSLD because they can stay in their house,” says the financial planner. You can’t predict everything. But, one thing is certain, they must ensure that they manage their assets well to protect their quality of life. »