The dark side

“My grandfather will turn 100 later this year,” writes blog dog Allan, who obviously has great genes. “By his own admission he has lived a long and wonderful life. I agree and he continues to be awesome. However, he has become more frail and has a declining memory in the last few years.

“For that reason my father (POA) decided last year to move him to a longterm care facility. His expenses are now about $9000/month all in. After the sale of my grandfather’s home he has about 800k in his investment portfolio to cover his expenses. His remaining asset is a cottage which is located a significant distance away. I guess it is worth 1-1.5 M.

“My grandfather wishes it to stay in the family however no one is able to pay market price for it. My father and one of my siblings offered to buy it (splitting the cost) for 500k total. My question is: Is it ok for an asset to be sold at a discounted price to family members? Especially considering one of those family members is POA. But it feels wrong to buy an asset from the estate at a steep discount when the estate is meant to be shared equally among the heirs. Also I’m not certain the 800k portfolio plus OAS and a small CPP is enough to see him to the end. Any advice? Hopefully this is helpful to others who may be facing a similar situation.”

You dad strikes me as a perfect example of why people should never, ever, ever and never choose an uninformed relative as their power of attorney. A POA’s first and sole duty is to act in the best interests of the person who granted them that authority. It is not to try and steal their stuff.

Your father is probably a decent guy, but this borders on illegality. It is certainly immoral and unethical. And, of course, it’s an attempt at tax evasion, which will fail.

A cottage can be transferred free of capital gain tax to a spouse, wherein the tax owing is rolled over without being paid. It cannot be sold at a discount to market value or gifted to a child or other relative without the CRA getting its share. That equals 50% of the appreciation over the years up to $250,000, and two-thirds (66.67%) of the remaining gain. That tax is payable upon sale by the owner – your grandfather (or his estate).

So by proposing that he pay about 30% of the market price to take the cottage, your father is saddling your grandfather with a tax bill of $625,000 (to be included in his taxable income for one year, at a 54% rate) while he receives just $500,000. The net effect is to remove a significant asset from the estate for his own benefit at the expenses of the property owner and his heirs.

Starkly, this underscores the folly of how most people pick a POA. Thinking that a child would naturally put your interests first is a basic human blindness and flaw. Experience shows most adult children are focused on themselves, not parents – especially old ones they have warehoused. Too often they’re unschooled in tax law or too financially illiterate to look after their own affairs, let alone those of another person.

Dealing with an elderly person who needs continuous and expensive care, with an estate that will need settling, probate to pay, heirs to satisfy, terminal tax return to be filed, pension payments to halt and debts to settle is complicated and time-consuming. A POA who becomes the executor is, in most of Canada, also personally liable for missed taxes or liabilities for years after death. The task requires skill, knowledge, patience, time and honesty. Expecting your adult kid to do this – when they likely have a family, job, needy doodle and stresses to deal with – is unreasonable. And unwise.

As this blog has pointed out in the past, better peace of mind comes with an institutional executor who might also be granted POA duties. It could be the trust division of one of the big banks, or a family lawyer, or the trust arm of an independent broker. There are also professional executor services to lend assistance and support to an inexperienced family member, or take over the process.

It’s not free. But fees are in line with the size of an estate, and come with an assurance that matters are settled legally, completely and fairly. A professional executor will also save families from the ever-present danger of being pulled apart by avarice, jealousy, greed, entitlement and all those other sweet emotions that ooze out when a will is read. Totally worth the bucks.

As for the $800,000 that Al’s grandpa has, with a bill of $108,000 (after tax) for the nursing home, he may run out if he’s there for seven years. That’s unlikely, but he’ll certainly burn through much the cash his estate has. Instead, if the funds are put in a B&D portfolio with even a 40% growth component (as opposed to the usual 60%), there should be an income generated of close to $50,000, or enough to pay almost half his overhead. It’s worth considering.

One hundred years?

Impressive. I hope you spend time with the old guy, hear his story, understand his rich life and fete his accomplishments. Except for your dad.

About the picture: “Here’s Corby,” writes Paul, who likes to haul the pooch around on his back. “He is a Havanese / Poodle mix and weighs all of 3.2 kg. He is kind and polite, and going to the beach and chasing ball are his favourite things ever.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2024/10/06/the-dark-side-2/