Personal Finance

Parents funds..what to do?

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  • Aug 7th, 2019 10:24 pm
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[OP]
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Mar 8, 2018
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Parents funds..what to do?

Around 80k in a RRIF...60-40 GIC-Mutual fund. They are 82 yrs old and don't rely on the RIFF to live...the min they are required to withdraw doesn't make or break them.
To me the 40% in mutual fund seems like more risk than an 82 yr old should be taking...even though they don't need the returns...the capital drop the last week or so can attest to that.
GIC = buried in backyard or stuck in a mattress IMHO, but at least there is no risk to the capital and it will be simply drawn out over their remaining years of their lives.

Is 100% GIC the way to go here? Thanks in advance for any and all thoughts.
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Mar 25, 2012
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ports9 wrote: Around 80k in a RRIF...60-40 GIC-Mutual fund. They are 82 yrs old and don't rely on the RIFF to live...the min they are required to withdraw doesn't make or break them.
To me the 40% in mutual fund seems like more risk than an 82 yr old should be taking...even though they don't need the returns...the capital drop the last week or so can attest to that.
GIC = buried in backyard or stuck in a mattress IMHO, but at least there is no risk to the capital and it will be simply drawn out over their remaining years of their lives.

Is 100% GIC the way to go here? Thanks in advance for any and all thoughts.
It really depends what their plans are. If they don't need to take more than the minimum, why can't they just keep it the RRIF and withdraw the interest and dividend income from the balanced mutual fund? As long as the mutual fund's all-in costs are sub 1% and do not underperfom the passive indices, I see no problem with it. You could move them into a Scotia or RBC index mutual fund portfolio, the Mawer Balanced Fund (MAW104), or a robo-advisor like Questwealth Portfolios that would be under 0.50% including underlying ETF MERs.

When they pass way, do they insist on the assets being sold and passed to their heirs all in cash, or might they suggest only selling the portion necessary to cover final income taxes owing from the withdrawal from the RRIF and then transferring the funds in-kind to the heirs to hold in perpetuity? If the latter, I'd suggest sticking with a low cost 60/40 balanced fund or, if they want to be a bit more conservative, they could go 40/60. If they want to take more risk, they could go 80/20.

Cheers,
Doug
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Jul 1, 2007
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If they don't need the money to live off of and they have the emotional tolerance for volatiliy, then they could be 100% equities. Or at least put some money aside for their minimum RRIF withdrawals (which get to be quite high in the 80s) and the rest into equities. This money's being invested for you and other beneficiaries, not them.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
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Jan 1, 2017
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You guys are insane! At this point of their life they need to be invested strictly in bonds. They don’t have the time horizon to wait for a bounce back if there is significant volatility in the stock market.
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ProductGuy wrote: You guys are insane! At this point of their life they need to be invested strictly in bonds. They don’t have the time horizon to wait for a bounce back if there is significant volatility in the stock market.
Yeah. Preserve the capital for inheritance or whatever they need.

Unless they are balling and don’t care... and just want to chance it for better returns. Some people have a lot of money... some...
[OP]
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Mar 8, 2018
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Thanks to all for your input!!!!

Thalo- Your answer is exactly why I posted here...knew someone would think outside the box (or at least my box). Interesting idea for sure! Appreciate you posting!!!!!!

My thinking is, it is still there money and while they might not need it now...down the road, they might...heck a 25 yr old could have something happen to them, but they would be able to ride out a down cycle of X years...at 82, not so much.

ProductGuy...you mention bonds...any thoughts on which bonds?

UrbanPoet...sadly no, not balling :-)

As an added note...lawyer has told us that putting one of the kids on the deed to the house won't be a way to avoid probate...thanks Gov't...one last cash grab at death.
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Jan 21, 2018
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ports9 wrote: ProductGuy...you mention bonds...any thoughts on which bonds?
The value of bonds also fluctuates, although it tends to run counter to equities. If you buy a long-term bond, you will be paid a certain interest rate until the term is over. The value of the bond, i.e., what people will pay you for it, is not the face value of the bond - it depends on how good an investment it is compared to other current investments like equities, dividend funds, real-estate, or other interest-paying options. Your bond might have a face value of $1000 and pay 2.5% interest for 25 years. If interest rates are currently running at 4% and the stock market is booming, nobody is going to pay you $1000 for that bond - it will be discounted. On the other hand if interest rates are currently 1.5% and the stock market is in the doldrums, the value of your bond might be more than $1000. Same thing with bond funds, which are just a compendium of short and long-term bonds. Of course the value of the bond approaches the face value as the term runs out.

If you wanted stability with moderate return, that would be a balanced fund - one that holds stocks, bonds, and interest-bearing instruments, with some percentage of foreign investment. The fund changes the percentages to keep the proportions balanced over time, taking profits from the categories that are growing and re-investing in the ones that have shrunk (i.e., the automatic buy low/sell high or "dollar cost averaging" strategy). This produces much more stability than individual investment categories, but at a lower average return than the best category of the moment - and it's not immune to big market drops, it just tends to drop by less.
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Dec 24, 2007
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Thalo wrote: If they don't need the money to live off of and they have the emotional tolerance for volatiliy, then they could be 100% equities. Or at least put some money aside for their minimum RRIF withdrawals (which get to be quite high in the 80s) and the rest into equities. This money's being invested for you and other beneficiaries, not them.
Totally agree.... people tend to parrot what the general comment about "seniors needing to reduce their risk" but that generally applies to those who need their savings to fund their retirement years. That assumes that their investment horizon is short and that any risk with equities will not have enough time to recover a hit on their capital.

The bigger question is what is their intentions with their RRIF money? If they have other pensions and savings and will never spend it and simply pass it on to their heirs, then it is no longer "their investment" but an "investment for their beneficiaries". On their death, the assets in the RRIF are simply transferred to the beneficiaries and for CRA purposes they are deemed to have been sold at FMV. So the investment horizon is whatever the investment horizon of the heirs. If the heirs will be taking that "inheritance asset" and cashing it in as they need to use it within in a short time frame, then the investment horizon is short and don't take the risk. If the heirs don't really need that "extra money" and simply will invest it, then the investment horizon will be long and can take more risk.

Note: however, the RRIF minimum withdrawal gets higher and higher as they get older
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Aug 2, 2001
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While there appears to be some debates on equities versus fixed income, I would just like to mention one strategy for fixed income is using a bond ladder:
https://www.investopedia.com/investing/ ... t-returns/

If you go with fixed income for a portion of the savings then a bond ladder might be worth investigating. It's a popular strategy for people needing income to shift into.


Your parents seem a little different in that they do not need the RRIF income, but they are forced to withdraw it. Perhaps fixed income is not for them at this point, however without knowing more detail it's hard to say (example: do they need to preserve capital in case they move into an old folks home that costs $4,000/mo?).
Member
Dec 22, 2018
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ports9 wrote:


As an added note...lawyer has told us that putting one of the kids on the deed to the house won't be a way to avoid probate...thanks Gov't...one last cash grab at death.
why is that? I thought this is workable if joint tenancy ,ie pass on to survivor(s)?
Member
Apr 3, 2009
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Why would you even need to avoid probate on their primary residence? Capitals gains aren’t taxed on that anyways. As I understand it, there could be on gains from time of death to the sale, but that seems reasonable.
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Dec 5, 2005
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tzhuge wrote: Why would you even need to avoid probate on their primary residence? Capitals gains aren’t taxed on that anyways. As I understand it, there could be on gains from time of death to the sale, but that seems reasonable.
Not capital gains but probably to void the estate Administration tax at least here in Ontario
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Aug 1, 2007
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If they don't require the funds at all for their own future plans except to pass along by inheritance, then the time horizon becomes much longer. I wouldn't see the need to be conservative and a higher equity allocation (even up to 100%) could make sense.
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Jan 21, 2018
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Before you get all high-risk with funds that elderly parents supposedly don't need, you might want to keep in mind that they might live decades longer than average, unexpected financial disasters can happen any time, and that end-of-life care costs can skyrocket. If you're going to manage the money as your inheritance, then are you also taking 100% responsibility for your parents' well being in the future?
[OP]
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Mar 8, 2018
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WetCoastGuy wrote: So the investment horizon is whatever the investment horizon of the heirs. If the heirs will be taking that "inheritance asset" and cashing it in as they need to use it within in a short time frame, then the investment horizon is short and don't take the risk.
This is the most likely scenario.
[OP]
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Mar 8, 2018
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TrevorK wrote: (example: do they need to preserve capital in case they move into an old folks home that costs $4,000/mo?).
We are kind of assuming this will be the case...so erring on the side of caution seems to make sense.
[OP]
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TomF62003 wrote: why is that? I thought this is workable if joint tenancy ,ie pass on to survivor(s)?
This was my assumption as well. We were cautioned that the CRA will make want to see some proof that one of the kids did something to "warrant" ownership. Did they help pay any of the mortgage...did they pay for some serious renovation etc...vs just placed on the deed late in the parents life to then be the sole owner of the house and be able to sell it tax free and no probate. And also warned that the time and cost of this "investigation" would generally not be worth saving the probate fee.
I've seen this be a real touchy subject on here and other forums...I don't claim to know everything about this subject, just passing along the info/advice we were told.
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TrevorK wrote: Your parents seem a little different in that they do not need the RRIF income, but they are forced to withdraw it. Perhaps fixed income is not for them at this point, however without knowing more detail it's hard to say (example: do they need to preserve capital in case they move into an old folks home that costs $4,000/mo?).
Data point: recently looking into private old folks care homes in Victoria BC for elderly parent. So far we found just one that offers multiple levels of care in the same facility for someone who is slowly deteriorating and doesn't want to keep moving every year. It costs $10,500 per month at their initial level of low care requirement for their smallest room - and that hardly begins to cover all of the costs. Now picture the cost situation 10 years from now with a burgeoning elderly population and probably a few future years of higher inflation. Then add a bunch of medical bills for procedures and drugs and equipment not covered by provincial or private health care plan. That million dollars that looked like plenty for their future could end up evaporating in just a few years.
[OP]
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Mar 8, 2018
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Scote64 wrote: Data point: recently looking into private old folks care homes in Victoria BC for elderly parent. So far we found just one that offers multiple levels of care in the same facility for someone who is slowly deteriorating and doesn't want to keep moving every year. It costs $10,500 per month at their initial level of low care requirement for their smallest room - and that hardly begins to cover all of the costs. Now picture the cost situation 10 years from now with a burgeoning elderly population and probably a few future years of higher inflation. Then add a bunch of medical bills for procedures and drugs and equipment not covered by provincial or private health care plan. That million dollars that looked like plenty for their future could end up evaporating in just a few years.
WOW, thanks for sharing that Scote64...those are some scary numbers.
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ports9 wrote: This was my assumption as well. We were cautioned that the CRA will make want to see some proof that one of the kids did something to "warrant" ownership. Did they help pay any of the mortgage...did they pay for some serious renovation etc...vs just placed on the deed late in the parents life to then be the sole owner of the house and be able to sell it tax free and no probate. And also warned that the time and cost of this "investigation" would generally not be worth saving the probate fee.
I've seen this be a real touchy subject on here and other forums...I don't claim to know everything about this subject, just passing along the info/advice we were told.
None of this is correct IMO. A parent can transfer partial ownership to a child just because they feel like it (probate avoidance can be a valid reason). The child doesn't have to "warrant ownership" or prove they paid for stuff....a transfer for just love and affection is fine. If the property is registered Joint with right of survivorship (not tenants-in-common), the property will pass to the survivors and thus that asset is not part of the will and estate and thus probate is not applicable.

One of the issues of putting a "child" likely adult child occurs if the child already has a principal residence and now they have ownership in more than one property.
Another issue is the parent has given up some control over the asset eg. If that child were married and they are now part owner of the parents house, you could be exposing that parents house to a divorcing spouse of the child.
We're all bozos on the bus until we find a way to express ourselves...

Failure is always an option...just not the preferred one!

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