This & That: Mish Mash Edition

L Wrote: I have power of attorney for my Mom.  She’s 90. She has invested wisely and is comfortable for the rest of her life. She has a nice problem-too much money in GICs that are due and too much money in her regular bank account! She wonders what to do-doesn’t need over 60 thousand there. Should she put a lump sum in the gt-grandkids education fund? Give a lump sum to two children, two grandchildren and two great-grand children? Will this avoid death taxes? She will probably have between 175 and 200 thousand when she dies.

Gail Says:  Your mom is in a lovely position, and it’s great that she wants to share her money while she can watch her children and grandchildren enjoy it. First off, we don’t have “death taxes” in Canada they way they do in other countries like the U.S. If that money is unregistered (not in an RRSP or RRIF) it would pass to her heirs without taxes, although if it did go through her will there would be probate fees. Probate fees are provincially set, but on an estate of $200,000, the fees in Ontario would be about $2500. On $260,000 it would be $3400 (yes, it’s on a sliding scale). So by giving away that $60,000 ahead of her death, should would not only be able to enjoy the gift giving, but save about $900 in probate fees. Here’s an example of a probate fee calculator for your reference: http://www.yaleandpartners.ca/calc_probate.htm There are plenty of these on the Internet, and you can find one for your province using Google.

There is also no “gift tax” in Canada, though transferring money to a spouse or minor child can have tax implications. Gifting cash to adult children and making educational savings contributions or cash gifts to non-child minors are no problem.

A Wrote: My sister has been on disability for over a year, and they finally have diagnosed her with a rare, genetic disorder called Fabry’s Disease. Life expectancy ranges from 40-70 years for a woman with this condition, but it can lead to severe pain in the extremities amongst more serious complications. There is a good chance my years of being able to work will be limited as I show many similar symptoms and now have to go for testing myself. My sister was 33 when she had to stop working (she will be 35 next month); I will be 33 in August. Her husband makes $100,000 a year so they are okay with their income and her disability cheque. I have term life insurance for $250,000 that has another 7 years left in the term plus a year’s salary in life insurance through work. We own a small home with a mortgage of $535 including property taxes bi-weekly. My husband makes $1,350 take home biweekly and I earn $570 weekly take home after daycare costs currently with 2 girls (ages 5 and almost 10). Do you have any recommendations to someone in my situation to get their financial house in order to help deal with a loss of health as smoothly as possible?

Gail Says:  I’m very sorry you have this significant trial ahead of you. I’m sending you many hugs.

What you really need is disability insurance that will replace your income when you have to stop working. Unfortunately, once you get a diagnosis, or it is perceived you had a pre-existing condition, you can’t get coverage. This is one reason I strongly encourage people to get individual disability insurance early in their lives. But that’s a bridge already crossed so let see what options you have now.

You need to look for ways to trim back your costs so that as your income goes away, because you’re able to work less, you’re able to manage your costs on your husband’s income. I strongly recommend that you learn to live on one income NOW. Your income should be used to get rid of the mortgage and build up a whack of cash so that when it does go away you’re very stable financially. If this seems impossible right now, don’t lose hope. Breathe, and then start cutting back.

You will also want to make sure you’re spending quality time (not expensive time) with your girls so you’re building heaps of wonderful memories together. And start investigating pain-controlling options outside of medication: you might want to look into massage, meditation, acupuncture. You want to build an arsenal of skills/options to deal with what’s coming.

You have some time to plan, and from your question, you sound like a strong, practical woman. There will be days you don’t feel so strong, so get started now while you still have the energy and determination. And remember to be kind to yourself. You can’t do it ALL; do what you CAN.

K Wrote: I have just received a settlement from a lawsuit (for long-term disability benefits owed). I am planning to pay off my debts including 2 small credit card balances and do some upgrades to our home. My question is how do I manage the balance of the settlement that will provide me with a decent return on investment??  Where do I put my money? Do I pay a portion of our mortgage?  I also have a pension plan in place, through my employer (HOOPP). I am also receiving disability pension from Revenue Canada. I am 42-ish years old and have 3 children, ages 17, 14 and 10. I trust you and adore you for your life-changing ways on all of your shows!! You are truly wonderful. I appreciate your frankness, and humour! Can you help me?? Pretty please??

Gail Says:  Good plan: paying off the debt. Since you have a pension plan and are getting a disability pension, you’ll want to figure out what the gap is between your current income and your expenses. If there is no gap, take half the money and pay down the mortgage so that’s gone as soon as possible. Put the other half of the money into a high interest savings account (you can’t afford to take any risks with this money) at somewhere that pays you more than 1.5% interest. (This is often a better rate than you can get on a GIC, so that’s why I’m suggesting it. When GIC rates are higher, use them.) If you have a gap, you’re going to need to cut back on your expenses or use some of your settlement to fill the gap. Keep in mind that settlement has to last a long time, so spend it as if it was your last piece of chocolate!

D Wrote: I love your shows and the new chapters in your blog. Your advice has helped me tremendously over the years. My question is this:  My husband and I are in pretty good financial shape – we have absolutely no debt at all (including no mortgage as we own our home outright), we have planned spending for every yearly expense we can predict (insurance, Christmas, birthday parties, children’s school fees and activities, etc), we max out our pension plans every year (with the help of my husband’s employer), we have all our insurances, and we put money away for the kids’ futures (by saving the rent we receive from an investment property we own).

We have 6 months of emergency savings that will let us continue living exactly as we are now (including continuing to save) and we have enough money in the bank for a car when our old one stops working (anytime now).

At the moment, we save 36% of our combined net income (as extra savings, not planned spending, and from our “job” incomes not income off investments, which is saved separately). So, considering we are not paying a mortgage, should our savings be more along the lines of 45%? I feel that what we would be putting towards a mortgage – 35% – should be put towards savings and we should save another 10% on top of that. Do you agree?

Gail Says:  I don’t often get to say this: Do you ever feel you’re sacrificing your Today for your Tomorrow? If you’re saving 36% of your income now, why do you feel the need to save even more? How much will be enough? I’m not trying to dissuade you from saving, I’m asking if you’ve evaluated how you’re using your money and if all the saving you’re doing is serving your needs today as well as tomorrow. Think about it a bit. Are there things you wish you were doing that you’re sidelining right now?

B Wrote: I am in my late 20s and have recently purchased a small home with my partner. We are both hard workers and have taken virtually no time off work for the last number of years. We started watching your show over a year ago, and have been strictly following a budget ever since. Neither of us have a problem with spending and we are quite hawkish when it comes to expenses and purchases. But despite this, we keep getting into financially driven fights because of my family. This is because my mother is constantly asking for personal loans.

In addition to the cash (she will ask for several hundred, if not thousands of dollars at a time), she has a credit card in my name which is maxed out at $12K, and last year she convinced one of my friends to loan her $20K. She declared bankruptcy a few years ago, but will not admit her financial situation to anyone for fear that it will damage her business reputation. At that time, as I was younger and felt a responsibility to help, I applied for increased credit limits at her urging in order to take out cash advances for her, something I absolutely hated doing! To make matters worse, she spends a considerable amount of money on alcohol and lives in a ridiculously large house. She gets burnt out from working and will take extended periods off work, or trips down to the USA to visit her significant other. This is a serious source of tension for us, as neither my partner nor I feel that we can take any time off work or afford the cost of a vacation.

To be clear, she eventually does pay me back for the personal loans, but the requests are so frequent that I can never save and I feel constantly feel broke. I feel guilty when my family does not have food, but they are living an unsustainable lifestyle. She also lets my brother live at home for free and encourages him to NOT WORK (he’s a recent university grad).

This week I got a call from the bank that her credit card in my name is past due AND over limit. The years of financial stress have taken an immense toll on my personal happiness and well-being… I need a way out of this mess. HELP!!

Gail Says:  I get that you love your mom. Why the hell does she have a credit card in your name? I expect you’re going to say it’s because she couldn’t get one herself which leads me to… How could that turn out well? And why do you continue to lend to her over and over? You are positively reinforcing her bad behaviour.

At some point you must draw a line. She clearly is having a fabulous life funded by whomever she can get to pony up the money she needs in the moment. When do you plan to stop being her ATM? I can’t believe you’ve put up with it for as long as you have.

Love is a two-way street: you don’t have to be a doormat to keep your mother’s love if she loves you. And if she loves you as much as you love her, why would you create this kind of strain in your life? You can love your mother without supporting her bad habits. And you can love your mother without giving in to her. You now have to learn how.

“I love you mom, but your constant requests for money have worn me out. So no more. I won’t lend you money. I won’t help to bail you out if you can’t manage your cash flow. And as for the debt you’ve wracked up in my name, take my name off the account so it’s not hanging over my head. If you won’t do that, I’ll understand that I’m less important than your having a good time. I’ll always love you, but right now you’re not making it easy for me to like you.”   How’s that?

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14 Responses to “This & That: Mish Mash Edition”

  1. Wow. The last one blew me away. The mother needs to grow up and get a grip on her life.

  2. All very different situations, with good advice from Gail as usual.
    I can’t understand why B, or anyone else, would ever let someone have a credit card under their name. To me that is just a stupid thing to do.
    B’s mother is just using her daughter and B needs to stop allowing it to happen.

  3. B. needs to get the credit card cancelled if not already done that, and make sure that when cancelling it, the credit card company puts down that it is at the customers request. if the mother is discouraging the brother not to work, then he will likely be the next in line to start going to B. as an ATM, and then B. will be supporting him too !! what a mess ! the mother needs to sell her house, pay off her debt to the credit card and know that there is no more money going to subsidize her life style. not a penny. this situation would not sit well with me as a partner and the relationship would be over. the credit card needs to be cancelled immediately and hopefully B.’s mother has the strength of character and self respect, to pay off the balance owing in full and get her life and finances in order. B. also needs to have the strength to say NO More Money and stick to it regardless of the consequences . I am sure that B. has already taken care of the problem. I hope !!!

  4. A wrote: “I have term life insurance for $250,000 that has another 7 years left in the term plus a year’s salary in life insurance through work. ”

    The term policy likely has a ‘conversion option’. This option allows you to exchange your term policy for lifetime/permanent coverage – and receive standard rates without a medical exam.

    Secondly, when you become ineligible for the work coverage, you have 30 days to convert that coverage to an individual policy (again without taking a medical exam). *Nobody* will tell you about the 30 day deadline.

    Both are excellent ways for uninsurable people to lock in their coverage for their lifetime.

  5. Good edition of This and That, Gail – I love reading these. D is in an enviable position. Personally, I’d encourage D and her/his hubby to think carefully about their financial goals, including possibly early retirement. No mortgage, no other debt, lots of savings – they may want to think about whether they really want/need to keep working. If early retirement appeals to them, they’ll want to work out how much more money they need to meet their lifestyle expectations in retirement (with a little extra for a cushion in case they live longer than anticipated) and spend the next few years socking away as much as they can so they can quite the rat race worry-free. If they love their work and don’t want to stop anytime soon, then what else might they want to do with their money? Travel? Gifts to their family? The possibilities are endless – they’ve been very good with their money and now they get to reap the rewards :)

  6. avatar Genevieve Says:
    January 9, 2014 at 11:56 am

    Correct me if I am wrong but B should also be paying the credit card since it is in B’s name and that B’s credit is being ruined as we are writing!

  7. avatar Seriously Says:
    January 9, 2014 at 11:57 am

    @ LifeInsuranceCanada.com

    It is very good of you to get the word out on that. Thank you.

  8. Just saying

    I have a credit card that my mom is the secondary person on.

    I personally don’t use that card, but my mom pays the bill. So I have no worries.

  9. avatar Maureen N Says:
    January 9, 2014 at 1:51 pm

    The last mish mash about the Mom is very sad. A lot of people have ORCHIDS in their lives. An orchid is a person who is beautiful and we love them and enjoy having them around but in the end they are really just parasites. You have to cut them off or they will suck you dry.

  10. I agree that the mothers behaviour is deplorable, but it’s not easy to cut parents out of your life. The parasite versions just don’t let go and will go to great lengths to make the child think that he or she is the one in the wrong. Going as far as trying to poison other family members against them.

    I’ve lived through a similar situation.

  11. avatar Annie Demill Says:
    January 9, 2014 at 5:58 pm

    ‘L’ should get her name on all her mother’s bank accounts and investments and then there will be no probate fees because you are a joint owner. Make an appointment with her bank and get both names on everything and don’t forget the safety deposit box if she has one. My sister and I did this and when our mother passed away everything, except TFSA and RRIF’s, became ours immediately. Also a good idea to have her name on all the utility bills if her mother is living in a house she owns in case the time comes when she will have to contact these companies for whatever reason. They will not talk to you if your name is not included along with the mothers. Bell Canada would not even talk to my husband because the phone was registered in my name not his.

  12. B Mom sounds similar to mine. She has never saved a dime and prior to my parents divorcing racked up credit card bills. Now she is “retired” and expects my brother and me to take care of her. She is in her early 60s. I have had to say no on many occasions for my sanity and for the sake of my family.

  13. Annie Demill said: “‘L’ should get her name on all her mother’s bank accounts and investments and then there will be no probate fees because you are a joint owner.”

    Suggest people get a professional opinion before embarking on that technique. I suspect it may have only ‘worked’ because you didn’t get caught. A joint bank account doesn’t seem like a get out of jail free card for the probate process.

  14. avatar Annie Demill Says:
    January 15, 2014 at 4:07 pm

    LifeInsuranceCanada.com : We did get a professional opinion and I know plenty of people who have done this for many reasons and not having the bank accounts go through probate is at the bottom of the list. We paid all my mothers bills, utility, taxes etc. because she did not want to or could not handle doing this. There is nothing underhanded in doing this and that is what you are making it sound like. Not having the money go through the probate process was a happy coincidence.

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