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As power of attorney, does it make sense to divide up a parent’s assets before their death?
I am hoping that someone can give me advice on my mother’s accounts. She is 87 years old and unfortunately has dementia and is in a care facility. I am both her power of attorney and her executor. She is currently sitting on approximately $250,000 in accounts and GICs. My question is should a small portion be gifted to each of her children prior to her passing as a “gift” and, if so, is that gift taxable? Is there an amount that falls into that range?
—Chris
Your question is one of the more common ones that comes up in my practice, Chris. First off, I am sorry to hear about your mother. Dementia is a challenging impairment and I know from experience how difficult it can be to care for and make decisions for an aging parent.
When acting as attorney for your mother, you are responsible for making financial and health care decisions on her behalf. A power of attorney can generally appoint someone to do anything with your finances that you can do. That can include banking, managing investments, buying or selling real estate and so on.
An attorney cannot write a new will or make changes to beneficiary designations. They must act in the best interest of the individual who appointed them. They are a fiduciary with a very high standard of conduct.
In your role as your mother’s attorney, Chris, you are supposed to manage her finances for her. This does not generally include gifting her assets to others, like yourself and your siblings.
You mention you are her executor as well. An executor is an individual who is appointed in a will to distribute the estate of the testator (the person who wrote the will). A power of attorney applies during someone’s life and ceases immediately upon their death. That is when their will and the executor take over (though practically, it may not be official until the will is probated).
Even if your mother’s will states that her estate is to be divided equally between you and your siblings, Chris, you are not yet acting as her executor until she dies. While she is alive, you should be managing her money for her and that generally does not include making early estate distributions.
Despite this, many people do start to divvy up their parent’s estate before they die. There are risks in doing so.
The primary risk is that you are not acting properly in your role as her attorney. You could be personally liable for improper management of her finances.
Beyond that, if you give away too much money, she may not have enough to fund her ongoing care costs.
The only benefits to improperly gifting assets prematurely are getting your inheritance early and possibly reducing the probate or estate administration costs depending on your province or territory of residence.
Gifts are generally not taxable in Canada, whether made during someone’s life or upon their death.
There may be income tax implications of withdrawing from certain accounts though. Registered retirement income fund (RRIF) and corporate withdrawals, for example, generally constitute income for the account holder. There may also be tax implications from selling or transferring certain assets, like non-registered investments or non-principal residence real estate, which are subject to capital gains tax.
Someone acting under a power of attorney in a province or territory with high probate fees may be able to establish an alter ego trust—to be used only for the owner of the assets—that may be able to bypass probate or estate administration tax.
The terms of the distribution of trust assets on the individual’s death must match those of their will. But this would require legal advice and has costs up front and ongoing. It may only be beneficial for a multi-million dollar estate in a high probate/estate administration tax fee province.
So, could you gift some of your mother’s assets now to yourself and your siblings, Chris? You certainly could. Would it be offside? Yes, it would be. Would there be repercussions? Probably not, but there could be.
Seniors should be mindful of the a high degree of trust needed for the person they appoint to make decisions for them in the future, either as power of attorney or as executor. And children acting as attorneys should be careful not to go right to estate settlement by dividing up their parent’s estate early.
Both should seek out legal advice, so they know how estate documents work and what the role of an attorney or executor is once appointed.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.
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Jason, this is an important article that delineates executor from power of attorney. Thank you for handing this discussion with respect, for the person asking the question.
Skip lots of fees for lawyers and probate. She will want what is best for you and she isn’t going to spend it. Divide 2/3 of it out equally and have another sibling help you if not all acting together. Leave her enough for taxes but as you withdraw the bank will already have a withholding amount for taxable gains or on registered money. Leave her enough for care home but you would have been better off doing it earlier, going into care home with lots of money is senseless.
“So, could you gift some of your mother’s assets now to yourself and your siblings? You certainly could. Would it be offside? Yes, it would be. Would there be repercussions? Probably not, but there could be”
“Offside” meaning what? Is that illegal or just in poor taste to
some? Would there be fines or penalties? Especially taking into consideration if the parent agreed to the gifting?