My 81 year-old mother recently made a huge decision in Jan to sell her condo and move into a semi-assisted retirement center next door. We have discussed this option and the possible timing of it in the past years, but at that time she still had reservations as she felt very capable to maintain her own home and had decent mobility. Unfortunately, in the last few years the day-to-day activities of maintaining her own place were becoming increasingly difficult for her. She had recently hired a maid service, and started having recurring trouble with vertigo and balance. Her same-aged, long-time friends from her condo complex had started to move out in the last year to retirement centers, and during their get-togethers they were discussing the overall benefits of making this change. Some of what they discussed was about the things mentioned above, the difficuties, but I think there were a few other discussions and recent experiences that struck a major cord with her and helped her finally consider making this decision. The decision to sell her condo and move to a retirement center spurred a number of other considerations and decisions, all which I helped her with, including a brand new new financial plan and a significant downsizing.
One of the biggest reasons Mom was deciding to make changes, is SHE wanted to make these important decisions. She did not want to get into a situation where decisions were being made for her, nor did she want this stress on her family. She felt it was time for her to decide to make some changes. She had recently seen others in her circle of friends who were getting these decisions forced on them, and it was unsettling to her. She did not want to get to a point where it was a stressful situation for her or her family.
One of the other things that influenced her decision, was that a friend of her’s who moved into a retirement center last year said her advisors told her she needed to start simplifying her estate for disposition and tax advantages. In Canada there is no inheritance tax, or tax on the heirs. Instead, upon a person’s death, all their assets are considered to be deemed sold as if they were still alive, and all income and taxes are settled by your estate (executor) before any distributions are made to heirs. Every asset owned by an estate will basically be converted to cash and applied as income to the final tax return of the deceased, and the total will be assessed for tax and and capital gains or losses in the year it is disposed. This includes real estate, all investments (mutual funds, stocks, bonds, GICs, treasury notes, etc), or any other appreciable assets. In the case of a home, it will be considered sold at time of death for fair market value, whether it is sold or not. If the home qualifies as the person's principal residence, e.g. they have lived in it for at least 3 years, it will be exempt from capital gains tax. One important thing to consider is if the home is not sold immediately, and the value goes up significantly, heirs could be on the hook for capital gains taxes for the difference in value between the time of death and the future sale. Also, any home comes with other expenses that follow it including insurance, maintenance, and utility costs. So having it tied up in probate or pending sale for too long in an estate settlement will bear additional costs to the estate. It is best to seek out tax accountant and lawyer counsel with specific expertise in these areas when you are planning estate settlements involving a home as there are other scenarios and nuances that could affect your plans, such as joint ownerships in homes. In these cases what you think and want to happen on your death might not be what actually happens according to the law. A more important area to consider in estate planning is money that is tied up in registered accounts like RIFs or LIFs. With these types of investments, any holdings will be sold and the accounts will be collapsed, bearing the full brunt of any capital gains or income taxes. This can be a considerable amount approaching and up to 50% if the deceased person did not consider this in their drawdown plans. For example, if you have $1mm sitting in these accounts at time of death, it’s like getting a $1mm paycheque that year and you will pay close to half in tax. Just some things to consider, as many people have a strong bias towards holding and saving versus letting go and spending from these accounts in their retirement. Especially in the later phase of life.
Another thing that got her thinking more seriously about moving to a retirement center, was a close friend of hers’ passed away late last year, and it was days before she was discovered (ultimately by family). One of her fears was having family find her passed away in her home and the trauma it would cause. She felt by moving to a retirement center, where they will check in if you haven‘t reported for meals or activities, was more agreeable to the alternative option of family or friends finding her. The reality is, her fear of not being attended to in a medical emergency has been increasing in the last few years, and she had been talking about getting medical alerts or other aids that would respond to this type of event.
The final influence on her decision was simply “market-timing”. Property values in this area have increased by 25-35% in the last year alone for a variety of reasons, and people were getting top dollar for their homes. Her condo sold quickly and for nearly +70% of the her purchase price. This fact sort of fed into a previously discussed reason, to reduce her estate tax bill, as she was netting almost double what she had paid for her condo.
The change has been pretty exciting and a new learning curve for Mom. With the move, we saw an opportunity to make a few more beneficial changes. She (and my Dad) were with Investors Group for 25+ years, and they were never really happy with them for good reason. I reviewed her situation there a few years ago when my Dad passed, and determined that they were taking 2/3’s of her passive income in management fees. Personally I think this is highway robbery, and have been biased against this industry for many years. She was paying near 3% in fees! So… we reviewed her portfolio goals and made a decision to move her money out of Investors Group. We moved her RIFs and condo sale money into laddered GICs to support her annual income needs. There were a few key reasons for this big change to her portfolio; remove market volatility, increase her overall returns (believe it or not!!) without increasing risk, and eliminate the excessive and crippling fund advisory fees. Another good reason to do this was to consolodate her portfolio and financial advice in one easy place.
One last change that has helped her in terms of peace-of-mind was a downsizing plan that followed her decision to sell. She is moving from a 1350 sq ft condo into a 615 sq ft apartment. Well, if you do the math, the footprint is +50% less, therefore we had to get rid of at least 50% of her condo contents. In reality, it was likely closer to 60%, because she had a big storage room in her old place and won’t have much storage in her new place. So after two weeks of facebook market sales, I am nearly done with this effort. She only has a dresser and a queen bed left to sell, and that will be sold right at the end. We made this a bit more exciting for her, as we got rid of all her furniture and bought a new, smaller, furniture package and TV that fits better in her new place. So she’s getting a fresh, new start! She also went through pics and old files and cleaned house on those things too, amongst other “stuff” she never used or even knew was there. Also, there are meals and cleaning provided in the new place, so no need for groceries, or all the cooking/cleaning aids.
At any rate, I’m happy she made these important decisions now, and I think she is very happy too. The move will take stress off her to maintain a household, which it getting harder and harder at her age. It will alleviate her fears of not being able to make this decision herself in the future, or not having medical support in a timely manner, as she lives alone. The financial portfolio overhaul and downsizing changes will greatly simplify her estate, make it easier for her to understand, and take the worries away that come with having too many things to manage. It will increase her overall wellbeing. One other thing to note, is one of her best friends who lives next door, is piggy-backing on her decision and moving to the same place at the same time. I’ve also been helping her. So she will have a good friend in her new place, making the transition even easier!