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Some financial advisors are seeing an influx of clients concerned about how to provide financial support to their elderly parents in their golden years. While that scenario can add complexity to clients’ financial plans, some strategies will minimize the impact and ensure they remain on track with their own financial goals.
“For any new clients, our intake form now has [a question about] whether they’re expecting an inheritance or expecting to support their parents. It’s become such a big part of planning,” says Brenda Hiscock, certified financial planner at Objective Financial Partners Inc. in Cobourg, Ont.
Maili Wong, senior wealth advisor and senior portfolio manager with The Wong Group at Wellington-Altus Private Wealth Inc. in Vancouver, says her practice has also started to have more of these conversations with clients, particularly those whose parents are now in their 70s and 80s and may require home care or admission to a long-term care facility.
“Exacerbating that is the pandemic,” Ms. Wong notes. “That took a toll on the mental, physical and emotional well-being of folks. I do see the need for advice for clients who are taking care of their parents financially and emotionally as well.”
Caring for parents is the most common form of caregiving in the country, according to Statistics Canada. Forty-seven per cent of all caregivers are caring primarily for their parents or in-laws, a figure that rises to 61 per cent among caregivers aged 45 to 64.
Aravind Sithamparapillai, associate at Ironwood Wealth Management Group in Fonthill, Ont., says it’s common in immigrant communities for adult children to help out their parents financially. While Mr. Sithamparapillai’s parents, who immigrated from Sri Lanka, did well for themselves, he’s already started having discussions with his wife about the possibility of his parents coming to live with them and what that would mean for their finances and living situation.
Equity between siblings
Advisors stress the importance of broaching the topic as early as possible to get clarity on their parents’ financial situation and how much support is truly necessary, particularly if they expect their parents will need some level of caregiving. Ms. Wong notes this can also, potentially, allow the client to turbocharge their monthly retirement contributions for a few years before they need to dedicate a portion of their budget to their parents.
Clients may also need to consider prioritizing their tax-free savings account over their registered retirement savings plan for a certain period of time to have the flexibility to draw on the funds in an emergency, Mr. Sithamparapillai says.
One key planning consideration is equity between siblings, he adds.
“There can be downstream implications that people are unwilling to talk about, because maybe [one sibling] is more well off,” he says. “If the family is like, ‘We’re going to do this together and we have ideas about what they need,’ it can be challenging if other siblings have financial constraints.”
Ms. Wong points to life insurance, which she says can be a useful tool to give the client financial flexibility to support their parents and be replenished later with a tax-free lump sum after both parents have passed. The product can also act as an equalization strategy between siblings who can’t contribute at the same level, she adds.
She often helps the parents of clients put the proceeds of the sale of their home into a diversified portfolio that pays out a monthly cash flow geared toward their needs – whether that’s to help pay for renovations on their child’s home, or to cover the cost of a retirement home or assisted living facility.
For clients who expect their parents will need home care or a space in a long-term care home, Ms. Hiscock says she has begun connecting them with a senior advisor – a specialized professional who can help clients find the right caregiving option and provide cost estimates. Home care, on average, costs about $500 a day if around-the-clock, 24-hour care is needed. Retirement homes range from $2,000 to $10,000 a month, and long-term care, which is subsidized, costs roughly $2,000 a month.
With those estimates, she puts together a mini plan for the parents and uses that to build the cost of supporting them financially into the client’s financial plan. She models those costs until the parent turns 95.
Ms. Hiscock says people supporting their parents should be aware of applicable tax credits for caregivers. The medical expense tax credit covers a host of expenses, including dental bills, health aids and nursing home care. The disability tax credit is worth almost $9,000 annually in federal and provincial tax relief and can be backdated for up to 10 years.
Mr. Sithamparapillai also points to the home accessibility tax credit, which is worth up to $3,000 per calendar year, for people who renovate their home to make it more accessible for their parents.
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Editor’s note: This story was updated to correct the average home care costs and how much the disability tax credit is worth to someone who qualifies.