This & That: Mish Mash Edition
Posted by Gail | Filed under This & That
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?