Your Aging Parents and Money
It’s never too early to discuss financial planning with your parents
Did you know that many Canadian seniors may acquire a disability or activity restriction that requires them to seek help with their finances? Limitations sharply increase in a person’s late-senior years, with mobility, sight, hearing and cognition becoming further restricted. Many older adults may also experience illnesses that may make them incapable of sorting their own finances. According the Alzheimer’s Society of Canada, Dementia cases are abundant in Canada, with Dementia expected to rise to 2.8% of the total Canadian population by 2038.
Even with these odds in mind, many people find it difficult to sit down with their parents and have a serious discussion about money. However, if you think your mom and dad might have trouble managing money in the near future because of the effects of aging, you need to take action right away.
Use the following steps as a guide to help your parents build their life savings.
Step 1: Begin the conversation
First, you need to set up a time to speak with your parents. If you have other siblings, invite them to join your discussion. You should discuss important information about your parents’ finances and see what they have in store for their future, such as a will, an advanced healthcare directive, or possibly nothing at all. Make sure that your family agrees beforehand that this is a non-confrontational discussion.
Step 2: Discuss wills and estate planning
It’s essential to have a will set in place. A will is a legal document that specifies how a person’s property should be divided and how custody of their children should be handled upon their death. It exists as an alternative way for dividing property and arranging child custody aside from government regulations. The default method is long, lengthy and expensive, known as probate, and should be avoided at all costs. When planning the will process, you can choose to make trusts or gifts to successors or charitable organizations, which also be used to reduce the amount of taxes due upon death, and also making sure the individual’s life wishes are honoured. It’s best to hire a lawyer to help with the will process, particularly if your parent’s property division is complicated, or if you want to minimize tax implications regarding inheritance matters.
Step 3: Set up an advanced health care directive (AHCD)
If you parents become too unwell to make proper decisions on their own, an AHCD is a document that instructs others how to take care of them in medical care. Under the circumstances outlined in the document, it may allow your parents to decide on of the following choices:
- Appointing a health care agent – A spouse or family member like a son or a daughter can become appointed to make sure the instructions in the document are fulfilled. Wishes may include prolonging life or withholding treatment depending on circumstances, as well as artificial means of prolonging life.
- Preparing instructions for medical care – A “living will” can be written, summarizing your parents’ wishes about life-sustaining treatment if they are terminally ill or in a coma. Their future is clearly documented for future health if they can no longer speak or are incapacitated.
Step 4. Appoint a power of attorney
A Power of attorney is a good idea to plan ahead for a time when your parents may need help managing their affairs. According to the Government of Canada, a Power of Attorney is a legal document you sign to one person or more than one person, giving them the authority to manage your money and property on their behalf. The person you appoint is referred to as the “attorney,” and that person does not need to be a lawyer.
There are three types of power of attorney:
- Conventional – starts when the parents sign it and ends when they become incapacitated
- Durable – starts when the parents sign it but doesn’t end until death
- Springing – starts when something occurs, such as a parent becoming incapacitated
Step 5. Consider trusts
A trust is a legal device where your parents’ assets may be contributed. Money that is contributed into a trust no longer becomes the property of your parents, but instead belongs to the trust. The trust may be used in different ways, mainly to pay out income for your parents during their lifetime, and then the remainder of the assets may be disbursed to beneficiaries upon your parents’ death. Since trusts are so complex, they should be set up years in advance, before your parents require care. It provides the benefit of protecting assets that would otherwise be sold off to pay for your parents’ care. Use a knowledgeable lawyer who understands estate planning for further information on trusts.
Planning ahead for the future is essential to protect your parents’ finances. This will help make sure your parents’ well-earned assets are passed down to their family members. If you or your parents need assistance budgeting or would like to speak to a trained credit counsellor for further advice about money management, call Consolidated Credit today at 1-888-294-3130, or take the first step online with our Free Debt Analysis.