The year is still new and Domenic Tagliola, a Tax and Estate Planner with TD Wealth, reminds us that now is a great time to evaluate what state your savings, your retirement plans and your Will is in.
The year is still new and Domenic Tagliola, a Tax and Estate Planner with TD Wealth, reminds us that now is a great time to evaluate what state your savings, your retirement plans and your Will is in.
It may be the ultimate indignity to seniors that, after years of working and supporting family, they become victims of financial abuse just when they need help and care from others.
And while it may be hard to imagine this happening to your parent, the statistics spell out how frequently this problem arises. The World Health Organization states that one in six seniors suffers some kind of abuse worldwide and, while national figures are hard to come by, the Ontario Human Rights Commission has reported that financial abuse is the most common form of elder abuse reported in the province.1,2
"Elder abuse is rampant and it's an underreported crime," says Domenic Tagliola, Tax and Estate Planner, TD Wealth. He says that the problem has two kinds of perpetrators: third-party fraudsters who use the internet, phone and face-to-face methods to separate an elderly person from their assets, and family members or loved ones who use influence or manipulation for the same purposes.
Tagliola says that a senior may be too embarrassed to report a crime or may not even know that a relative is subtly directing funds into their own hands. In this way, the crime goes unnoticed.
Elder Abuse Ontario, a charitable organization dedicated to raising awareness of the problem and providing front-line training, says that, while anyone can be swindled, the elderly may be particularly vulnerable. That's because mental health concerns such as depression and cognitive decline put them at higher risk. Moreover, because seniors are often socially isolated, they may be more susceptible to those who prey on lonely hearts for their fraud. Here are four red flags that can indicate a senior in your life may be suffering financial abuse, and what you can do about it.
These changes could be as minor as small amounts of missing money or as large as abruptly selling property. It can include unusual expenses, cheques written to strangers or requests for loans or new mortgages. In extreme cases, the senior may not be able to pay the bills or their standard of living can drop below what it should be. A relative should know the general pattern of a senior's life and where their money goes — anything out of the ordinary can be raised as suspicious.
Again, knowing the personality of a senior can help decide what might be an innocent relationship or a romantic con. If an elderly person begins throwing money around with a new friend or companion, questions should be raised. Discreetly or not, a scammer will inevitably move to demand money. Unfortunately, close relatives can also be as cruel and may have easier access to a senior's heart and their finances. It can be a joint bank account that is abused, or it could be demands for more rent than is needed.
If a senior is suddenly behaving unusually or nervous about money, it may mean that a friend or a relative is influencing them and the senior has a misguided reason for keeping this to themselves. Alternatively, they may have already been a victim of some kind of rip-off and they are too upset or humiliated to talk about it. Some kinds of scams have a high degree of embarrassment attached and many people would rather part with their money than have family and friends find out any details.
If someone is having a criminal influence on a senior, whether that's an outside-party or a close relative, the senior may be persuaded to sign documents they don’t understand or without legal support. Changes like this should alert family and friends, as well as the professionals involved, that something odd is going on. These documents may include credit card applications, changes to legal ownerships, Powers of Attorney or Wills. If a senior is unsure about what they are signing, they need to seek independent legal help.
Tagliola says that partnering up with experienced legal and financial professionals is one way to prevent financial elder abuse. In some cases, an advisor may be the first to know if the client is acting out of character or if their financial plans have taken an unexpected turn.
One tool that can also help is a Power of Attorney (POA) for property, Tagliola says. While it can allow the person responsible (a son or daughter, for example) to guide a senior's affairs if they lose capacity, the attorney also has the power to actively look at account statements and ask questions at the bank if they suspect any odd activities.
Moreover, Tagliola advocates that people should consider co-attorneys for a POA: the combination of a relative of the elderly person plus a trust company as co-attorneys would offer both the personal touch plus experienced and knowledgeable service, and together may quickly spot anything suspicious.
Estate planning with the help of an advisor can also detect and disrupt any exploitation, says Tagliola. That's because in the process of exploring the state of financial affairs, a professional may pick up shady activity. If there are payments going to individuals, joint-accounts, or odd bequests — anything that demands explanation — an estate lawyer can find out if anyone is having undue influence on the elderly person.
Elder Abuse Ontario says it's important for anyone who suspects fraudulent activity to ensure they are respecting the choices of the senior, even if the decisions don't make the family happy. For instance, an elderly person may begin a new relationship and may share expenses but that doesn't mean there is any wrong-doing.
The key to dealing with the problem is to identify the signs that something is wrong before your parent, grandparent or any senior suffers a financial loss, humiliation or hardship as a result. Tagliola says that scammers don't want to be detected so a crime may not be obvious and may involve many small frauds that go under the radar.
Elder Abuse Ontario offers safety planning tips for seniors including never lending a credit or bank card, keeping their PIN number a secret and seeking independent advice before signing any documents. While police, caregivers and family members can be alerted if there are concerns around abuse, the provincial guardian and trustee, an office under the attorney general which is mandated to protect vulnerable people, can also be contacted.
It's easy to see why being a millennial could seem like a drag. Every week brings fresh headlines trumpeting the challenges 20- and 30-somethings can face when buying homes, saving for retirement and affording the trappings of their social media–heavy lifestyles.1 But help may come from a familiar source: their families. There's strong evidence that a massive generational transfer of wealth is taking place as retired baby boomers pass down assets to their millennial children and heirs.2 The question is: Are they ready for it? A recent TD survey asked more than 6,000 Canadians whether they expect to receive an inheritance.3 And while a large portion of millennial-aged Canadians say they expect to receive assets from a loved one, only a third of them have had a conversation about it with their spouse or partner. Here's what else we learned from that survey.
THOSE BORN 1980—1996
1 in 3
MILLENNIAL-AGED CANADIANS SAID THEY EXPECT TO RECEIVE AN INHERITANCE
43% Expect to inherit or have inherited a residential property, or the proceeds from the sale of one
60% Expect to inherit or have inherited cash
34% Expect to inherit or have inherited family heirlooms
20% Expect to inherit or have inherited an investment portfolio
18% Expect to inherit or have inherited a vacation property
WHAT SOME MILLENNIALS SAY THEY WOULD DO IF THEY RECEIVED AN INHERITANCE TODAY
Contribute to retirement plan
Pay down a mortgage
Pay down non-mortgage debt
Use it to purchase a home
OF MILLENNIALS WHO EXPECT AN INHERITANCE HAVE DISCUSSED PLANS FOR USING AN INHERITANCE WITH A SPOUSE OR PARTNER
SOME MILLENNIALS WHO HAVE INHERITED ASSETS SAY IT MADE THEM FEEL
How much did they receive?
Less than expected
As much as expected
More than expected
OF MILLENNIALS WHO HAVE ALREADY INHERITED ASSETS WISH THEY HAD SOUGHT THE ADVICE OF A PROFESSIONAL
For many millennials, a sudden surge in wealth that comes from inheriting assets could dramatically change their financial situation. It can also be an overwhelming experience, both emotionally and practically. An advisor may be able to help parents and children navigate this important transition and highlight potential opportunities and priorities for everyone involved.
About the TD Survey
TD Bank Group commissioned Environics Research Group to conduct a custom survey of 6,021 Canadians aged 18 and older. Responses were collected between February 20 and March 1, 2018. This report includes questions asked to 3,028 Canadians, of which 687 are millennials, who have received or anticipate receiving an inheritance in the future.
Domenic Tagliola, a Tax and Estate Planner at TD Wealth, often reminds clients that one of the largest tax bills they’ll ever get is likely one they’ll never see. That’s because it’s delivered after death and it will be the responsibility of their heirs to pay it.
For many of us, that tax bill could be sizable because our registered savings — formerly sheltered from tax — are transferred to our heirs, while the property we own faces tax treatment under deemed disposition rules.
But with careful planning, there are ways to help minimize the tax consequences of your estate transfer. If you begin transferring money and assets now, while you’re alive, Tagliola says, a transfer strategy can help to shield your wealth, provide opportunities to see your money used, and even help allow you to control (to a certain extent) how your funds are spent.
The alternative, Tagliola says, is that if, for example, parents tell their adult children to expect a million dollars from their Retirement Income Fund (RIF) after they die, they may bestow only a portion of that amount. Situations like these are not unique. The people who are most commonly passing on wealth right now are largely part of the aging Baby Boomer Generation; it’s estimated that trillions of dollars are moving from that generation to the next in what is called the Great Wealth Transfer.1
“But what people may not be aware of is this wealth transfer may also trigger one of the largest tax liabilities in history,” Tagliola says. “That can mean the single greatest recipient of this movement of wealth may not be our sons or daughters, grandkids, or our favorite charities — it could be the tax collector,” he says.
With that in mind, you may consider a pre-emptive wealth transfer plan to help minimize the tax impact and protect your assets. You may even appreciate the added benefit of seeing your family, friends and charities tap your wealth while you’re still alive to witness it. And if you think your situation is not the same as the Great Wealth Transfer, with trillions of dollars cascading down, you can think of it as, “I’m just taking care of my family now for the future.” If this sounds important to you, here some things to maybe consider.
Tax is one of a few issues that should be foremost in mind as moms and dads consider their own family-sized wealth transfer. Whether the assets involved are limited to a home and savings for the kids, or include more substantial investments, properties and business interests, there are tools and strategies that can help preserve the value of your assets as they are transferred to your beneficiaries. Other considerations in a transfer strategy might include how much you should pass over, and how much you need to keep for yourself.
Some more direct methods may include a loan, a gift while you’re alive or a will when you are deceased. Other methods could be beneficiary designations on registered Retirement Savings Plans (RSPs) and Retirement Income Funds (RIFs), joint-ownership arrangements for property and businesses, family trusts and insurance products. The best tool or method to suit your wishes may not be an obvious one. Speaking with an advisor can help you work through the advantages and disadvantages of various options and help you select one that fits your needs.
“…the single greatest recipient of this movement of wealth may not be our sons or daughters, grandkids, or our favorite charities — it could be the tax collector.”
TAX AND ESTATE PLANNER,
Keeping your money out of the hands of the CRA shouldn’t be the only thing motivating moms and dads to share their wealth early. Many families will have personal reasons for sharing wealth and should set a goal to make their own family-sized wealth transfer a success both before and after they pass away, says Tagliola.
What make a successful wealth transfer strategy? It may mean your clan gets better use of your assets today while you’re alive. It could mean you get to see how well your money is used now.
More practically, that may, for example, involve grandparents communicating the plan with their heirs and getting input back. Strong communication can help to ensure the wealth transfer plans are acted upon, that the assets that are passed on are appreciated and that there are no family quarrels now or later.
Poor communication, says Tagliola, could turn your great wealth transfer into the Great Squabble Over Mom’s Money.
While parents may often take the lead in planning these issues and should have the final say, it may be ideal for all the family members to participate. Communication is a key component in making an intergenerational wealth transfer plan work, says Tagliola.
“This is where the family should be sitting down and discussing what are the parents’ wishes in respect to dividing up their property,” he says.
Tagliola says these meetings can also be a catalyst for younger generations to really think about what they want and why. For instance, kids may have loved visiting the cottage or cabin, but they may not love sharing maintenance fees and property taxes if they rarely visit as adults.
Family meetings can also identify occasions when it’s appropriate to begin transferring wealth. For example, it may be sensible for a family member — let’s say a granddaughter — to receive some money as soon as possible to help pay for grad school, a mortgage down payment or because she just needs money as she starts up her household. The situation seems straightforward, but that can open up a number of other considerations that have to be thought through.
These can include: Should the funds be passed over through a simple cash gift or through a loan that is certified in a lawyer’s office with the expectation that the money will be paid back?
A grandmother, for example, may also make a decision whether to disclose a gift to her other grandchildren. If funds are given to one grandchild and not another, the grandmother may consider adjusting her will to account for the earlier funds transfer — that is, giving that grandchild less according to how much was given earlier. Or grandmother may also consider “forgiving” the loan in the will.
If grandmother does open the discussion up to other grandchildren, how does she weigh competing calls for her money if one grandchild wants to finance a graduate degree and one wants to buy a pool?
Perhaps the foremost consideration for grandparents — before they even settle on giving money away — is whether they can afford it, says Tagliola. While some people may think they have their financial plans in order and have excess cash to “gift” to their family, they should consider whether their funds will last the rest of their life and whether they will have enough to cover any health care costs over those years.
Again, consulting with an advisor can help estimate what your future needs may be, and how much you can afford to give away. An advisor can then assist you in determining when and how you should do it, whether it’s a cash gift, a loan or one of several other methods of transferring wealth.
If you need help developing your goals around any of these issues, an advisor can help you to set them and help develop a plan to ensure your intentions are seen through. That may include consulting with a tax specialist. An advisor can also help you weigh competing priorities for your wealth and help you decide which options are right for your particular family situation. They may also offer to help explain any complexities to the whole family and the rationale for undertaking any financial strategy, says Tagliola.
Aiming to make your own wealth transfer a success can make you happier that you’re taking care of the family now and that they will be taken care of — whatever the future holds.
— Don Sutton, MoneyTalk Life
Poppa had lived a long and healthy life and the family was meeting to talk about his will, sell his home, clear his bank account and tidy his affairs. Marj, Jim and Kim laughed and cried when they found out the sentimental gifts Poppa left them in the will; hockey cards from 1951, an album of old photos, a coffee can of silver dollars and, of course, his old fishing pole. Poppa made sure his family would long remember him.
But it was his bank account and value of his properties that needed to be dealt with. Marj was the executor and was in charge of writing cheques to everyone, big and small.
A substantial sum would come to each child and everyone was talking about what they would do with their new inheritances. Everyone had plans for the money they were to receive. Jim was hiring an architect to do massive upgrades on his home right away (something he’s put off for a long time because he did not have the funds) and Marj said she was booking a long-discussed safari trip for her family.
But then Kim spoke up. “This is all great but should we wait until we file Poppa’s last tax return? Isn’t that important?”
It’s extremely important.
Dispersing a loved one’s wealth before taking proper care may have unfortunate consequences for a family. Missing tax-filing deadlines with the Canada Revenue Agency (CRA) can bring steep penalties.* Failing to settle outstanding issues, like back taxes or unfiled tax returns can also delay the settlement of affairs.
Thirdly — and this is a warning to executors — as ‘guardian’ of the estate, executors are responsible personally for settling affairs with the CRA. That means, if you give away Poppa’s assets, but Poppa still owes the CRA $100,000, you may be personally liable for the amount of tax owed by the deceased.
Domenic Tagliola, VP, Tax and Estate Planner at TD Wealth, has seen many varied types of outcomes when dealing with the last tax filing. In his experience dealing directly with clients, it’s these situations that can cause difficulties:
Tagliola has witnessed many issues when these difficulties occur.
He recalls one family where one of the children was the executor of a parent’s estate and had given away money to himself and his two siblings who were the heirs. Unfortunately, when dealing with his parent’s taxes with CRA, he was informed that his deceased parent had not filed a tax return in five years and owed back taxes of $150,000 plus interest.
“Most of the horror stories involve adult children splitting the assets of the estate before they even bother to realize there is a tax return which may need to get paid.”
The son was in the unenviable position of having to ask for the money back from his siblings.
“Most of the horror stories involve adult children splitting the assets of the estate before they even bother to realize there is a tax return which may need to get paid,” Tagliola says.
“These are not hypothetical worst-case scenarios; they really do happen and sometimes the siblings are nice and repay and sometimes they’re not, or the money is long spent.” he says.
And Tagliola points out a further difficulty. While getting money back from a relative (who may have already spent it) may be difficult, it may be impossible to retrieve funds if they have been given to a charity or any beneficiaries.
If the deceased died between January 1 and October 31, the final tax return is due by April 30 of the following year.
If the deceased died between November 1 and December 31, the final tax return is due six months after the date of death.
Tagliola says the process of dealing with the will and assets of a loved one is an emotional and often stressful situation, more so if you are the executor. You may be mourning a loved one but now you have suddenly been handed an administrative duty that you may be unfamiliar with. You know there are cut-off dates for filing documents and that adds to the pressure. Plus, an executor may have to deal with heirs — often close family members — who are anxiously expecting a certain amount of money.
He says the first questions people ask, and the most important information they need to know when filing the last tax return for a deceased person, are the deadlines the CRA has and the penalties involved when those deadlines are not met.
The filing deadlines are dependent on the date of death:
The consequences of not meeting those dates can have an impact on the wealth that is being passed down. Tagliola says that there are two penalties people should keep in mind. The first is the late filing penalty, which is five per cent of the balance of the funds owing, plus one per cent of the balance owing for each full month that the return is late, to a maximum of 12 months. Secondly, you may be charged interest on any balance outstanding and the penalty.
“It’s a double-whammy, not only do you have this penalty but you have to pay interest when you miss the deadline,” Tagliola says.
“Regardless if assets are going to be rolled-over on a tax-deferred basis to a spouse or not, a terminal tax return is a must.”
Many people believe the final tax return is not urgent; for example, if your elderly father passed away but your mother inherited all the assets. But that’s not true.
“Regardless if assets are going to be rolled-over on a tax-deferred basis to a spouse or not, a terminal tax return is a must,” says Tagliola.
And he suggests that the final return should be completed by a professional even if the return is relatively simple and straightforward. Any delays or errors could delay the filing of the final tax return and therefore also delay the release of any asserts to waiting family members.
Once the final tax return has been completed and the CRA is satisfied that the estate has paid the taxes it owes, it will issue a clearance certificate, which means the CRA will ‘close the file’ on the estate and the executor can move on with the next stage of managing the estate of the deceased.
“The clearance certificate is important if you are the executor because that is the ‘thumbs up’ from CRA that says we’re done with this person, we’ve looked at the taxes owing and the amount has been paid and therefore, we don’t need to worry any more about this estate,” Tagliola says.
“It's a double-whammy, not only do you have this penalty but you have to pay interest when you miss the deadline.”
As said earlier, if the assets are dispersed and the CRA finds that the estate still owes taxes, the executor is personally liable to pay back those funds, not the heirs who have just inherited those assets.
Tagliola says a professional acting as an executor or under the direction of an executor should be able to provide a cushion of money for the last settlement with the CRA. For instance, a professional accountant may be able to make an expert decision on what can be reasonably owed to CRA, what should be held back and what can be safely dispersed to the heirs. Plus, an accountant with experience can also make a knowledgeable prediction for the executor and the heirs as to how long the whole process will take.
It often is dictated by the time of death. If the person dies earlier in the year, the terminal tax return is not due — and may not be processed — until the following April. If a person died mid-March, institutions will likely issue tax-related documents (T4s) the following February.
Also, the tax return for the year previous to the last tax return (the second-last tax return) must be completed as well if a person died early in the year. There is no clear timeline for receiving a clearance certificate from CRA and the family of the deceased should be aware that the turnaround may not be quick, says Tagliola.
What can further delay a clearance certificate from the CRA are historic tax issues with the CRA. Although someone may pass away, the problem of not filing past tax returns, for instance, does not go away. An estate may still owe back taxes, or may be in the process of being assessed and the CRA will take steps to receive the money it is owed from the estate. Again, if the funds are dispersed to the heirs, it will hold the executor of the will liable for any funds owed.
If the person dies earlier in the year, the terminal tax return is not due — and may not be processed — until the following April.
If a person died mid-March, institutions will likely issue tax-related documents (T4's) the following February.
Another factor that could delay processing the final tax return is how complex the financial affairs are.
“The more complicated the estate is, the more complicated the terminal tax return is going to be. The amount and the types of assets are going to dictate the complexity,” says Tagliola.
Everyone should have their finances organized and easy to access. If a loved one passes away, the sooner tax forms are filed, the sooner the CRA will produce a clearance certificate.
While it is possible for a family member to prepare the final tax return, you may wish to seriously consider getting a professional to do it. Many people may be comfortable filing their own returns, even if the final tax return for a deceased relative appears straightforward, but errors could mean unwanted delays.
“This is complicated stuff. Don’t be afraid to get professional help,” he says. “In any case, you should be 100% comfortable that the assets are not going to be called back from the CRA should you decide to distribute the assets before the final return. And accountants can help you make that determination.”
— Don Sutton, MoneyTalk Life