Seniors in the family? Yourself, your (grand)parents, … or both?

The concept and issues of aging have been going through tremendous changes recently. Being a senior is much less chronologically determined than before. Previously unheard of challenges, opportunities, and ambitions characterize many seniors’ lives. The following can be a starting point to think about what we want to do with the rest of our life, … and its financial implications:

• If you yourself are a senior …
  • Protection aginst financial hardship from health problems
  • Taxation issues
  • Staying in control

• Talking about (and with!) your parents
  • Wealth transfer

Having retired, your main concerns may (or probably will) be to ensure comfortable life conditions for yourself (and your spouse if you have one), while living healthily (or not), and maybe to ‘leave a legacy’ to your family and/or favourite cause/charity, when you die. It would perhaps be even more important to get satisfaction and enjoyment from actually seeing the positive effects of one’s gift on the lives of those you want to help (e.g., a new program initiated or some asset purchased in an organization, a grandchild making successful strides in life, etc.).

First, you should learn about long term care insurance, a relatively new concept and product in Canada. Given the status of and trends in our health care system, you probably owe yourself to think about this product before you start seriously thinking of your heirs. If you are not older than 65, you can also consider another nontraditional product, critical illness insurance, although around retirement you may find that by then its price will have grown prohibitivly high for you.

On the estate planning side, it is important to be aware of chances for longevity. It is just a piece of statistics, of course, but you should keep in mind that 50% of 65 years old males of today will live up to age 78, and 10% will live up to age 91. For women, the respective ages are 84 and 96. In other words, seniors today have to plan for longer term than their parents’ generation did. There are serious consequences of this for investments: many people with only or predominantly GICs should consider various asset-allocation strategies, unless they want to seriously risk running out of assets in retirement, or eroding the purchasing power of their future income. Segregated funds can be of interest too, and also annuities and other guaranteed income products. Mainly for affluent people, universal life insurance provides an investment vehicle that may be superior to taxable investment accounts. It is important to understand that the ways in which managing depletion portfolios (retirement assets) differs from that of accumulation portfolios at earlier life stages.

Some people want to avoid taxes at death by giving away their assets while living. While it may work for some, the right basic approach probably is that one is still better off by keeping control of his or her assets as long as being able to. Fortunately, one usually has good opportunities for both eating and keeping the pie, so to speak. Various applications of universal life insurance, and the special rules of charitable giving provide these opportunities. There are costs, but the various tax advantages in many cases abundantly compensate for them. There may be solutions even if you are uninsurable because of poor health.

To stay with the pie analogy, you do not have to distribute it between family and charity at each other’s expense; instead, due to the tax-treatment of charitable giving, and the tax aspects of insurance, you can increase the pie, and give abundantly to both.

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Talking about (and with!) your parents

If you have elderly /grand/parents, it may bring both responsibilities / difficulties, and more positive challenges to you. On the negative side, I refer to the frequent need for providing exhausting and ever-costlier long-term care services, for increasingly long periods. On the positive side, even if it sounds cruel, the fact remains that at least in a strictly financial sense, time is on your side. I refer to the chance of inheritances in the coming decades. The two sides are usually closely linked, in various ways. Even if you feel that your own life has things more important now than thinking of long term care insurance, you should probably familiarize yourself with this solution. You may even consider buying this protection yourself for your parents, to make sure the family will be able to cover the costs of long term care if / when that need arises, … and to protect this way the value of retirement assets or future inheritance that may have to be spent otherwise on long term care services. A most important thing is to be able to breach the subject and talk about options, wishes, intentions in time, that is well in advance.

Another aspect of how the intergenerational wealth transfer works is dealing with tax-issues and investments. Since you and your own children are possible/probable future heirs, it is in your interest as well to try to ensure that their estate grows nicely, and changes hands in a most tax-efficient way. If it is important for them as well, and if they are willing and able to deal with these issues, you might want to explore various insurance products, mainly segregated funds, and the broad area of universal life insurance applications with them. You should also be aware of the great new tax advantages of planned / charitable giving.

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