A problem I had not considered before. | General financial discussion | Discussion forum

I have a bit of experience. My mother never had RRSPs, my father had passed also no RRSPs, and we had to jump through hoops to get a TFSA for my mother as she was incompacitated in a care home, so she did not have any TFSA funds. The provincial government provided subsidy for the care home. She sold her condo when she went into the care home and the funds received for the sale were NOT used against her and were invested in GICs.
As things got tighter with the government subsidy they would adjust her share annually based on her net income and would also adjust the formula of how the subsidy was handled leaving her with less and less. Any interest or dividend income was more or less taken from her as part of her payment. I believe at the end of her stay at the home she was only left with 200 or 250 per month. Not a lot left for essentials, dentist, etc that she had to pay for.

So, Loonie, looking into the future for the scenario you presented I feel one needs to look as "low income" as possible. And suggest:

Keeping in mind RRSP or RRIF funds withdrawn are fully taxable, you want the withdrawals to hit your net income before you are in the position of needing a care home.
Move as much RRSP to TFSA = non taxable and does not show as net income
Move any other RRSP to non registered = only interest or dividends are taxable
Continue to move any non registered funds into TFSA every year
Spend your TFSA money last or any funds under your mattress if any.

Loonie said

I think I understand that, kanaka.
But it sounds like in your situation that your father had actually died when you faced this problem.

What I am looking at now is what happens when both are still living, one is mentally incompetent and in a nursing home, and the other is still living independently.
Let's say there is more than enough money to cover the costs of the care home, but most of these funds are the assets of the person who is in the care home and are thus not available to the partner who is still living in the community.

Let's say that the majority of the money belongs to the husband, who is in the nursing home.
The wife has his power of attorney, but that does NOT entitle her to use up his money for her own needs. When they lived together in their own home, this worked out fine. However, once he becomes incompetent she is obligated by law to separate the money into "his" and "hers", and she is not allowed to use "his" to support herself.

Allowing the possible distribution of assets to best advantage among RSPs etc as I described above, is there anything else that can be done to make life easier for the wife, who may not have a lot of assets of her own? I have been told by a lawyer that she must separate their funds in such a situation.
When he dies, assuming he dies first, then of course she will likely inherit his money and there will be no problem except probate where applicable.

The problem is the interim period where he is still alive and still owns most of the money.

Let's wait for other answers. From what I have seen in the case you mention the one living in the community immediately becomes cash strapped and poor but if location worked out would perhaps move in to a child's home. Another question is...is there a POA that will allow the spouse (but not a child or other party) to use the funds to meet their needs?

Loonie said
I can't see how it would not be an issue.

If you hold someone's power of attorney for property, you are obligated to act in their best interests. That's what it's for, and the law is very clear on that. Otherwise, you could just have a field day with their money!
....

That's correct: the attorney can have a field day with the money!

That is why the choice of the attorney is very, very important.

Maybe you and I are thinking of different things. This is what a continuing POA for property look like in Ontario. Paragraph 4 gives the attorney very broad authority. From Ontario Ministry of the Attorney General: Power of Attorney Kit:

1. I,_________________ revoke any previous continuing power of attorney for property made by me and APPOINT:_______________ to be my attorney(s) for property.

2. If you have named more than one attorney and you want them to have the authority to act separately, insert the words “jointly and severally” here: _____________________

3. If the person(s) I have appointed, or any one of them, cannot or will not be my attorney because of refusal, resignation, death, mental incapacity, or removal by the court, I SUBSTITUTE: _____________________
to act as my attorney for property with the same authority as the person he or she is replacing.

4. I AUTHORIZE my attorney(s) for property to do on my behalf anything in respect of property that I could do if capable of managing property, except make a will, subject to the law and to any conditions or restrictions contained in this document. I confirm that he/she may do so even if I am mentally incapable.

5. CONDITIONS AND RESTRICTIONS
________________________________________________________
________________________________________________________
________________________________________________________

6. DATE OF EFFECTIVENESS
Unless otherwise stated in this document, this continuing power of attorney will come into effect on the date it is signed and witnessed.

7. COMPENSATION
Unless otherwise stated in this document, I authorize my attorney(s) to take annual compensation from my property in accordance with the fee scale prescribed by regulation for the compensation of attorneys for property made pursuant to Section 90 of the Substitute Decisions Act, 1992.

8. SIGNATURE:___________________________________DATE:_________________
ADDRESS:______________________________________________________________

9. WITNESS SIGNATURE
Witness #1: Signature: _______________________Print Name:___________________
Address:________________________________________________________________ _________________________________________Date:_________________
Witness #2: Signature: _______________________Print Name:___________________
Address:________________________________________________________________ _________________________________________Date:_________________

I think we're both right.

In Ontario, a court-appointed guardian of property has the fiduciary duties you mentioned, under subsection 32(1) of the Substitute Decisions Act:

Duties of guardian

32. (1) A guardian of property is a fiduciary whose powers and duties shall be exercised and performed diligently, with honesty and integrity and in good faith, for the incapable person’s benefit. 1992, c. 30, s. 32 (1).

An appointed attorney does too, but only when the grantor is incapable, which is not necessarily at the time of appointment. From subsection 38(1):

Attorney under continuing power of attorney

38. (1) Section 32, except subsections (10) and (11), and sections 33, 33.1, 33.2, 34, 35.1, 36 and 37 also apply, with necessary modifications, to an attorney acting under a continuing power of attorney if the grantor is incapable of managing property or the attorney has reasonable grounds to believe that the grantor is incapable of managing property. 1992, c. 30, s. 38; 1996, c. 2, s. 25 (1).

Dependants are not necessarily cutoff. A guardian or attorney for property is not required, at least not in Ontario, to spend the money solely on the grantor. Section 37 allows for even gifts and donations when there is sufficient property:

37. Required expenditures

Required expenditures

37. (1) A guardian of property shall make the following expenditures from the incapable person’s property:

1. The expenditures that are reasonably necessary for the person’s support, education and care.

2. The expenditures that are reasonably necessary for the support, education and care of the person’s dependants.

3. The expenditures that are necessary to satisfy the person’s other legal obligations. 1992, c. 30, s. 37 (1).

Guiding principles

(2) The following rules apply to expenditures under subsection (1):

1. The value of the property, the accustomed standard of living of the incapable person and his or her dependants and the nature of other legal obligations shall be taken into account.

2. Expenditures under paragraph 2 may be made only if the property is and will remain sufficient to provide for expenditures under paragraph 1.

3. Expenditures under paragraph 3 may be made only if the property is and will remain sufficient to provide for expenditures under paragraphs 1 and 2. 1992, c. 30, s. 37 (2).

Optional expenditures

(3) The guardian may make the following expenditures from the incapable person’s property:

1. Gifts or loans to the person’s friends and relatives.

2. Charitable gifts. 1992, c. 30, s. 37 (3).

Guiding principles

(4) The following rules apply to expenditures under subsection (3):

1. They may be made only if the property is and will remain sufficient to satisfy the requirements of subsection (1).

2. Gifts or loans to the incapable person’s friends or relatives may be made only if there is reason to believe, based on intentions the person expressed before becoming incapable, that he or she would make them if capable.

3. Charitable gifts may be made only if,

i. the incapable person authorized the making of charitable gifts in a power of attorney executed before becoming incapable, or

ii. there is evidence that the person made similar expenditures when capable.

4. If a power of attorney executed by the incapable person before becoming incapable contained instructions with respect to the making of gifts or loans to friends or relatives or the making of charitable gifts, the instructions shall be followed, subject to paragraphs 1, 5 and 6.

5. A gift or loan to a friend or relative or a charitable gift shall not be made if the incapable person expresses a wish to the contrary.

6. The total amount or value of charitable gifts shall not exceed the lesser of,

i. 20 per cent of the income of the property in the year in which the gifts are made, and

ii. the maximum amount or value of charitable gifts provided for in a power of attorney executed by the incapable person before becoming incapable. 1992, c. 30, s. 37 (4).

Increase, charitable gifts

(5) The court may authorize the guardian to make a charitable gift that does not comply with paragraph 6 of subsection (4),

(a) on motion by the guardian in the proceeding in which the guardian was appointed, if the guardian was appointed under section 22 or 27; or

(b) on application, if the guardian is the statutory guardian of property. 1996, c. 2, s. 24.

Expenditures for person’s benefit

(6) Expenditures made under this section shall be deemed to be for the incapable person’s benefit. 1992, c. 30, s. 37 (6).

Do you mean this question, Loonie?

Loonie said
...
What I am looking at now is what happens when both are still living, one is mentally incompetent and in a nursing home, and the other is still living independently.

Let's say there is more than enough money to cover the costs of the care home, but most of these funds are the assets of the person who is in the care home and are thus not available to the partner who is still living in the community.

Let's say that the majority of the money belongs to the husband, who is in the nursing home.
The wife has his power of attorney, but that does NOT entitle her to use up his money for her own needs. When they lived together in their own home, this worked out fine. However, once he becomes incompetent she is obligated by law to separate the money into "his" and "hers", and she is not allowed to use "his" to support herself.

Allowing the possible distribution of assets to best advantage among RSPs etc as I described above, is there anything else that can be done to make life easier for the wife, who may not have a lot of assets of her own? I have been told by a lawyer that she must separate their funds in such a situation.
....

It would seem that if there is more than enough money to cover the costs for the husband in the nursing home, then the wife, with the power of attorney, could have her "reasonable" monthly living expenses paid out of the extra funds, as one of his dependants.

That's still consistent with the lawyer's advice about keeping separate accounts. She may not be allowed to transfer all the funds at once into her own accounts. But, it sounds like she may have her expenses paid out of her husband's account monthly and document how those payments are consistent with item #2 of 37(1) and the principles of 37(2).

One of the guiding principles in 37(2), regarding what is reasonable, is the accustomed standard of living of the husband and wife:

1. The value of the property, the accustomed standard of living of the incapable person and his or her dependants and the nature of other legal obligations shall be taken into account.

That would allow for some common sense variations in what is reasonable.

Yes, this is a tricky area of law. I agree that the advice of an experienced lawyer in this area would be good.