Managing assets for a parent with Alzheimer’s

The situation

Alfred Galetti*, 78, was diagnosed with Alzheimer’s three months ago. He just moved into a Halifax care facility that’s close enough to his only son, Marco (55), for him to visit regularly.

Marco has been given enduring power of attorney. Having never been much of a numbers guy, he barely knows where to start. Plus, he’s exhausted from advocating for his father in the healthcare system, checking on his father’s longtime girlfriend, Lenore (79 and still healthy), and stressing over his two children—both nearing 30 and still living at home.

When Marco calls his father’s advisor, he discovers his father has the following assets:

• A $125,000 RRIF in a 60% equities/40% bonds mutual fund with no named beneficiary
• An insurance policy naming Marco as beneficiary with a death benefit of $50,000
• $25,000 worth of mining stock from Alfred’s former company
• A DB pension plan that pays Alfred $18,000 per year, with no survivorship benefits

He also estimates his father’s bungalow (fully paid for) is worth about $230,000 and, while it’s currently empty, Marco suspects he’ll have to sell it to fund the cost of public care ($3,100 per month out of pocket).

Marco discovers his father’s will hasn’t been updated in 15 years. Lenore receives nothing, even though she and Alfred have been together for the last seven years (but not living together). Marco’s mother died 20 years ago.

With his father incapacitated and unable to change his will or manage his own investments, how should Marco proceed?

* These are hypothetical clients. Any resemblance to real persons is coincidental.

The experts

Sarah Dykema,

lawyer, trusts and estates, McInnes Cooper, Halifax

Pat M. Irwin

president, ElderCareCanada, Toronto

Ashley Searle

wealth and estate planning specialist, Canaccord Genuity, Calgary

Shortened time horizon

Pat M. Irwin: There are waiting lists between six and 48 months for public-funded care, so Alfred is lucky to have gotten into a facility. He’s much better off in the public system. Also, a lot of private places don’t accept the liability of dementia clients. While public care is a bit more hospital-like than home-like, he’ll get the care he needs and the cognitive programming to make the most of what cognition he does have.

Plus, it tells Marco what his fixed cost is for Dad, which is a huge help in planning. His cost is $3,100 per month, which should cover bed and board, including food, activities, personal laundering and probably medication management. The average dementia patient lives another seven to 10 years after diagnosis, so Marco has to plan for that.

Ashley Searle: With his time horizon reducing, we have a much greater liquidity need. But I don’t think we need to look at taking on additional risk for Alfred at this point.

It’s great to know he’s not carrying any liabilities. He’s in a good situation right now. He has $1,500 per month from the pension plan. He has to withdraw the minimum from the RRIF, following the government’s schedule. At his age that’s $662.50. Since the funds are not locked in, he doesn’t have to withdraw a maximum.

For OAS, Alfred should get the maximum of $585.49. And CPP, if we’re assuming the maximum, then he gets $1,114.17. [Adding his RRIF income], that’s $3,862.16 per month. We do have a surplus, but he’ll need that in case of other incidentals, like medication.

Before liquidating any assets, we must consider Alfred in his current state. He may be attached to those mining stocks, for instance, since it was a firm he worked for. So it’s important to make sure we aren’t upsetting him by making a broad, sweeping change.

Also look at the defined benefit pension plan. It’s likely from the same company as the stock. How well-funded is that pension plan? He has exposure to that company in the pension plan that Marco doesn’t have control to change now since Alfred is retired. But Marco does have control to change the mining stock. So whether he reduces the amount of stock Alfred owns or sells it, that would be something to reflect Alfred’s shortened time horizon and risk tolerance.

PI: Marco could apply for the disability tax credit on behalf of his father. There’s also a medical expense tax credit from the federal government. If his expenses exceed 3% of his income, he can apply for these by way of his tax return. There may also be provincial drug benefit programs Marco can apply for on behalf of his father at canadabenefits.ca.

Use insurance for final expenses

Upon Alfred’s death, Marco will receive a $50,000 insurance benefit. Marco should consider using it to pay for final expenses, like Alfred’s funeral costs, says Ashley Searle, wealth and estate planning specialist at Canaccord Genuity.

“The policy would pay out tax-free, as Marco is named as the beneficiary,” she says. “It would pass outside of the estate. CPP will provide about $2,500, but Marco will likely have higher costs than that.”

Managing the property

AS: With the house, there’s more than one option. Marco has two adult children. They may look to become tenants in that place and pay rent, which would add to Alfred’s cash flow.

But if they aren’t able to afford that or aren’t interested, I think it would give Marco peace of mind to speak with a real estate agent and look at the logical timing to sell. How do things look now, compared with selling three or five years from now? It’s important to investigate that now so he starts having an idea of how to keep creating liquidity.

Canadians are able to sell their principal residence during their lifetime without needing to claim the gain on that residence, so Marco should consider doing that for Alfred. But is it going to upset Alfred that he has sold the residence, or is Alfred so far removed that he won’t realize it’s been sold?

Considerations after death

Sarah Dykema: If Marco sells the house after Alfred dies, the estate can still claim the principal residence exemption, but there would a big tax hit on the RRIF in the year of death because the full value of the RRIF would be included as income. If it’s down to $90,000 when he dies, for instance, then it’s an additional $90,000 of income in the estate. So it’s worth looking at how much money will be in the estate versus what the taxes will be owing in that first year.

AS: Marco can opt to pay the tax on the RRIF when those withdrawals come out. If not, they square up at tax time. When that RRIF comes into the estate, that’ll be taxed in addition to the defined benefit pension. You want to look at the whole picture. In the terminal tax return, that will all come in that year.

We also want to think about probate fees. In Nova Scotia, we’re looking at $1,003, plus 1.695% of any portion over $100,000.

Legal woes

SD: The first question is, does Alfred have the capacity to change his will? Only he has the ability to do that. With a diagnosis of dementia or Alzheimer’s, it doesn’t necessarily mean that Alfred is not able to update his will. There would have to be an assessment of his testamentary capacity.

In order to have capacity to make or change a will, you have to understand what your assets are, who would benefit if you were to die, who would have a claim, and what would be the result based on what you’re deciding to do.

If it’s determined he doesn’t have capacity to change his will, there’s nothing Marco can do. This underscores the importance of making sure your estate planning documents are always updated.

Nova Scotia legal terminology

Personal Directives Act: the provincial act governing personal care decisions for people who are incapacitated

Personal directive: the legal document that outlines a person’s care instructions and delegate

Delegate: the person who will make personal care decisions for the incapacitated person

Enduring power of attorney: the document outlining who will make financial and property decisions for someone who becomes incapacitated

If the will can’t be changed, is Lenore entitled to anything? In Nova Scotia, she would not be recognized under the Matrimonial Property Act or the Testator’s Family Maintenance Act. This means that on Alfred’s death, Lenore wouldn’t have a right to any sort of distribution of property—even if they were common-law, because common-law partners are not recognized under Nova Scotia’s legislation right now, despite a recommendation otherwise.

Still, if it’s found they had some interdependence, then maybe she could go to court and have a claim based on the idea of constructive trust—that it’s unfair for her to not receive some of his assets. But the likelihood of such a claim being successful isn’t high. So it’s unfortunate that his will may not match what he had intended while he was capable.

PI: Sometimes a person like Lenore may have been doing some caregiving activities. Those things may have a market value, so she may be entitled to some compensation.

SD: Yes, that would fall into the constructive trust idea. She could say, “I’ve provided these services and here’s the value of them.”

PI: It’s the idea that if someone else did them, Alfred would’ve had to pay this much.

SD: And if that was the case, then perhaps there’s documentation to support that. Lenore would have to confirm there’s evidence of that.

There also might be some things named in the power of attorney document that we aren’t aware of. Did Alfred say he’d like Marco to provide for Lenore, or make gifts? These types of specific things can be in that document.

PI: As for Alfred’s personal directive, if Marco doesn’t know what his dad’s wishes are about prolonging his life, he can’t get them when his dad’s in the depths of dementia.

But Alfred may be able to answer some carefully constructed questions on what kind of care he wants. Does he want the full monty? Does he want to be rushed to hospital and intubated, or just kept comfortable? And these are things that really stress the substitute decision-maker, legally known as a delegate. I always say, “Don’t get your dad plugged in if he doesn’t want it, because you’ll have to unplug him.”

These are tough discussions but they need to be had. What you’re trying to do as a delegate is act in your best understanding of what they would want, not what you would want, and that can be very difficult.

Overall, someone needs to do an assessment of Alfred’s health to make sure that anything that could increase the quality of his life for the remainder of his life is considered, costed out and implemented. This will help Alfred, but also Marco. These are the years [he’ll] want to spend with his dad, and I want Marco to look back and say, “I truly was able to do everything I could to give Dad his very best for the remainder of his life.”