Danielle* wants to help her elderly former tenants get out of the budget deficits they are facing with one living in a dorm and the other in a CHSLD.
Posted at 6:00 am
Henry* and Helen* used to be his tenants before subsequently buying a small house in the Vaudreuil region. “They’ve become my friends over the years,” says Danielle. I had a two-family house. I wasn’t very manual. It was him and he helped me with many things. They have been very generous people to me. And it’s up to me to give them a little bit. »
Henry is 85 years old, Helen is a year younger.
“He worked for an electronics company until he was 75,” 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 debt. »
Last September, they called Danielle for help. Since they were no longer physically and financially able to live in their house, they had to sell it.
Danielle helped them clean the house and their accounts. “You owed $30,000. And they didn’t have a penny. »
The property sold for $405,000. After paying off expenses and debts, they pocketed a capital of $175,000.
“I moved her to a beautiful retirement home in Île-Perrot. »
With the Régie des rentes du Québec (RRQ) and the Old Age Security Pension (PSV) as his only income, Henry receives $1,800 a month, an amount that was enough to pay the rent of $1,650 ($1,850 minus a $100 loan). $ for each). .
Helen’s $1,000 state pension covered groceries and other modest monthly expenses.
Unfortunately, they had only been settled for just under two months when a stroke forced Henry to transfer to a CHSLD.
His contribution to CHSLD expenses is $1,686, which is almost the entirety of his pension.
Since Henry no longer resides in the RPA, the $100 credit allocated to him also disappeared, increasing Helen’s rent to $1,750. But now she relies solely on her monthly benefit of $1,000 for all of her expenses. Food alone costs him $500 a month.
“I calculated that he’s missing $18,000 a year,” notes Danielle.
The monthly budget deficit must be made up by tapping into the $175,000 in assets currently sitting in Helen’s personal account without consideration.
“The CHSLD explained to me that if they saw that their income was too low, they could lower the rent,” stresses Danielle. But for that, Helen has to empty her investment,” she thinks she understands.
The CHSLD also told her the couple could invoke an involuntary separation, a tax measure that considers spouses single if one of them needs to be housed independently of the other.
“I just filled out the forms and sent them off,” says Danielle. But I don’t know how much it will give him. Will they take into account that she has money in her bank account? I have no idea. I’m swimming in nothing. »
Helen’s financial situation will improve after Henry’s death as she receives the surviving spouse’s share of her QPP pension. But if ?
Everything now rests on his fortune.
“How can I help him maximize his income so he doesn’t cash out his remaining $175,000 quickly?” asks Danielle.
“What concerns me is: where do I start? what should i do or not »
“I want everything to be okay. I don’t want her to end up in misery. »
Helen, 84 years old
PSV and GIS: $8964/year
No pension plan
Henry, 85 years old
PSV and GIS: $9600/year
No pension plan
$175,000 in a checking account from the sale of her property.
Danielle doesn’t know where to start.
Here’s the lead suggested for him by financial planner Émile Khayat, Senior Regional Director, Quebec and South Shore at TD Wealth Management.
Step One: First, understand monthly cash flows to derive how to optimize federal benefits.
Good news, Danielle has already taken an excellent initiative by filing an involuntary separation request. “This financial assistance mechanism offered by the government allows people aged 65 and over, married or de facto married but living apart for reasons beyond their control (medical or economic) to access certain financial benefits,” remembers Emile Khayat.
For Henry and Helen, the first benefit for each would be access to the Guaranteed Income Supplement (GIS), which is calculated on their own income rather than the couple’s.
Planner estimates show Henry would increase his combined OAS and GIS benefit by $144 per month. For Helen, the profit would be $716.
“$860 total, 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 surcharge, which is also calculated according to the status of a person living alone.
“Danielle can ensure that the calculations of the GIS are carried out retrospectively over 11 months once the involuntary separation has been accepted and implemented by the government,” advises our consultant.
The case of the CHSLD
How was Henry able to reduce his contribution to his placement in a CHSLD? asks Danielle.
“Incomes would have to be significantly lower than they already are to qualify for some cut,” observes Émile Khayat.
“I did simulations on the calculator for CHSLD charges. I simulated several things: if they have 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 reduction 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 wife,” notes our advisor.
“It is better to focus on other elements to optimize the financial situation. »
Mainly because of the $175,000 in Helen’s account.
Our planner recommends each spouse open a Tax-Exempt Savings Account (TFSA) and invest $81,500 in it, for a total of $163,000. An emergency reserve of $12,000 would be held in a high-yield savings account.
TFSA withdrawals “do not detract from GIS benefits and are not taxable,” he points out.
This nest egg would allow Helen to close her budget deficit of $10,300 a year.
Henry’s income from RRQ and PSV, taxed very little, will be enough to pay the CHSLD. “Those are his only expenses, so to speak. Everything is included that concerns his livelihood. »
Émile Khayat tested this scenario with very prudent assumptions: long-term average inflation of 2.5% (the norm is 2%) and a prudent yield of 2.37% – ie a gradual loss of purchasing power.
When Henry dies, whom the Planner carefully plans at the age of 95, his TFSA is transferred to Helen.
In the current situation and with these parameters, the couple’s savings will come to an end as Helen and Henry approach their 94th year. In the voluntary separation scenario, Helen retains sufficient funds until her death. Even on her hundredth birthday she was able to leave a small nest egg.
“It’s especially reassuring in the event that she has to pay for certain additional and unforeseen healthcare services,” the planner says.
He mentions in passing the importance of setting up general powers of attorney and protective mandates in the event of incapacity to work.
He also underscores the existence of a lesser-known status, that of ‘trusted person’.
“It’s an official status that now exists in the management of investment or planning accounts,” he informs. A financial adviser or planner asks their client to name a person they trust. »
This person, who has no rights or powers over the account, can be consulted if the advisor has any doubts about the health or clarity of their client.
“For example, if Helen later had a medical problem or disability of her own and we didn’t know about it, we could call Danielle and check with her if everything was okay. »
If she wants, of course.
* Although the case highlighted in this section is real, the first names used are fictitious.
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