When a parent moves in with you

There are many practicalities to parse


By Helen Morris, National Post
 
 

 
While it can be a great joy, taking in an elderly parent will have emotional, physical and financial ramifications for a family.


It is a tough time no matter what the circumstances when an elderly relative, perhaps a parent, is no longer able to live independently in their own home.

One option may be for your parent to move into your family home. If parents, kids and grandparents can all live together, then there are a number of financial, tax and estate issues to consider.

"It may provide a source of comfort to your parent and be a very positive thing to do, but we do recommend that you look at the practicalities," says Christine Van Cauwenberghe, an estate-planning specialist with Investors Group. "If the parent is moving in with you due to a deteriorating health situation, is your home properly outfitted with ramps and things like that? Is it really going to be a financial saving for them to move in with you versus moving into some sort of assisted living?"

There are a number of medical expense credits and deductions available for construction, renovation or alteration of a building, Ms. Van Cauwenberghe says, to enable access or easier living, but there are many terms and conditions for eligibility. Canada Revenue Agency has details at cra-arc.gc.ca/E/pub/tg/rc4064/README.html.Unless you are an only child, it is key to discuss financial and other arrangements with siblings.

"Sometimes people enter into caregiving agreements ... and there's a verbal understanding that they will then either receive a larger portion of the estate or receive certain money as compensation," says Ms. Van Cauwenberghe. Then, "the parent dies and there's nothing written down and the person who has been providing all the caregiving is extremely resentful."

For the sake of the family, all agreements must be openly discussed and in writing.

Occasionally, a parent might be able to contribute to his or her own upkeep. If a parent is paying rent, you can set off a number of expenses.

"Some caution has to be drawn, though, when claiming rental income on your personal residence," says Dean Paley, tax, estate and financial planning at Edward Jones. "If you claim a type of depreciation expense called capital cost allowance against your rental income, you may incur a partial capital gain when you ultimately sell." In Canada, when you sell your principal residence there is no tax on the gain, but claiming depreciation on rent changes the situation, so Mr. Paley suggests seeking advice on the best option for your particular circumstances.

Your parent's former home also comes into the financial mix.

"If they were to sell it, they should sell when they move out so there is no tax on the capital gain," says Mr. Paley, referring to the fact that the parent may decide to keep their home as an investment property, which would become taxable on sale.

Another often overlooked wrinkle in dealing with family property is whose name is on the title.

"A rash decision that sometimes people make is that they move into a child's home and ... the parent will add the children on as joint owners (of the parent's home) ... thinking that it will facilitate transfer of ownership," says Ms. Van Cauwenberghe. "I cannot emphasize enough the dangers of adding on a child or another individual as a joint owner of your home. It can make things extremely messy. We know that sometimes people do it because they think they are saving probate but in some cases they don't even save probate and it just causes a lot of headaches."

Speak to a lawyer before contemplating this route as joint ownership brings a number of risks and unintended consequences, such as, "If the child is married and gets divorced -- because they are joint owner of that property , that property would be subject to the division of assets for the divorce," says Mr. Paley.

And one other possibility you may not have planned for:

"If your parents are living with you and you pass away, how are they going to survive?" Mr. Paley points out. He says insurance can help to ease the financial stress and keep a roof over their heads if you die before your parents and children, so update your policies when a parent moves in.

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