Illustration by Photo illustration by The Globe and Mail. Source image: Getty Images.
The Beneficiary: Following her amicable divorce in 2019 and retirement from design consulting in 2023, 62-year-old “Natalie” faced another big change when her 92-year-old father fell and passed away days later. For Natalie and her two siblings, it was a wakeup call about elderly parents: Though their 89-year-old mother was in seemingly good health, now was the best time to transfer the family wealth in the easiest and most cost-efficient way. Nine months later, they were very glad they did.
The Inheritance: After her father died, his estate automatically moved to Natalie’s mother. “She was the beneficiary of everything, which turned out to be a substantial amount,” Natalie said. About $6-million, actually, including a cottage property, and although her mother’s 24-hour care cost a pretty penny, there was still enough money left that Natalie and her siblings feared massive impending tax implications. “We were so worried that … when she passes, what’s going to happen to that money?”
A quick lesson about what’s going to happen to that money: Canada has no direct inheritance tax (i.e. dad’s money goes to mom without tax implications), but when the surviving spouse dies, all assets are automatically part of their estate and considered sold at fair market value, which generates a capital gain. Half of any profit is subject to capital gains tax, which means it’ll be lumped into your income for the year and taxed accordingly.
To avoid that big bill, Natalie and her siblings decided it would be better if they were gifted that money (about $1.8-million each) in chunks in advance – provided their 89-year-old mom was firmly on board. “I felt like my mom was still cognizant enough to be involved in the conversation, though I was increasingly concerned about her comprehension as she got older,” she said.
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How she went about it: Unsure about either what to do or how to broach the conversation, Natalie approached her mother’s financial institution. “Their client was really our mom, not the kids, so they’re specifically there to make sure that we weren’t taking advantage, which is very, very important.”
The financial advisers suggested something Natalie had never even heard of: power of authority. Nope, that’s not a typo: “Power of attorney gives someone the right to make health and financial choices; power of authority lets you ask questions on behalf of the older person but they still ultimately have to sign,” explained Natalie. In her case, power of authority let both parties meet on comfortable middle ground. “It felt a little more respectful because we weren’t taking away her rights completely.”
All with her mother’s adviser overseeing the process to ensure her interests were assured and insured, Natalie and her siblings arranged a comfortable living allowance for their mom. They had a mutual agreement and understanding that if she ever needed more funds for additional care, they’d pay for it, and then they began the process of transferring money.
The only part that proved difficult was the cottage, because the deed had to be adjusted, and a tax bill arrived accordingly. “The question was then, does this bill go to the estate? Or should it go to the owner of the title?” Here, they disagreed and their relationship became strained.
What she learned: Before things got worse, Natalie and her siblings agreed to disagree. “We realized we weren’t on the same page and we weren’t gaining ground so we decided to bring in another voice,” Natalie said. They brought their accountant in as an objective third party to act as mediator.
Natalie and her siblings had a good relationship to start with, which certainly helps, but they also work hard to keep their bond strong via regular Zoom meetings and a continuing WhatsApp chat. When and if they squabble about money, which happens, Natalie seeks perspective: “Over the course of a lifetime, what’s 10 or 20 thousand dollars? It’s nickels compared to what we received and our relationships are worth much more.”
All three siblings are executors on the estate and all three benefited significantly when, nine months after their father’s passing, their mother too died suddenly. Her final tax bill was very manageable and, having dodged a huge tax bill, they made some sizable charitable donations for good karma all around.
Some details may be changed to protect the privacy of the person profiled. We want to thank them for sharing their story. Have you recently received an inheritance and would like to participate in Inherited? Send us an e-mail.