By Gigi Suhanic
National Post
FP Money Section
Saturday, December 18, 2004
Question: My parents, who are in their mid-80s, finally sold their house in September this year. The net proceeds barely exceeded six figures. But where to put the money? They live comfortably in a retirement building and don't require the house money to live. There are no outstanding debts.
Adrian Mastracci, investment counsel at Vancouver’s
‘fee-only’ KCM Wealth Management, says, "Seems to me they want to keep it simple. That being the case, obviously a savings account is one of the ways. But you don't have to sacrifice a return for simplicity's sake.”
However, my father would like to have access to the money on a day's notice. A big outlay would be funeral arrangements for him or my mother.
Anything with a management expense ratio (MER) is out. No stocks or bonds either; basically an interest-bearing account of some sort. Got any ideas? Should the children be included in a joint account type setup?
Answer: "Seems to me they want to keep it simple. That being the case, obviously a savings account is one of the ways," says Adrian Mastracci, an investment counsel with KCM Wealth Management in Vancouver. But you don't have to sacrifice a return for simplicity's sake.
Major financial institutions are known for offering paltry interest rates through their savings accounts. There are other options. Both ING Direct and President's Choice Financial offer savings accounts with decent interest rates and no service charges.
Two of many examples include ING's interest rate of 2.40% and President's Choice's 2.15%.
If you want to go the savings account route, Mr. Mastracci advises dividing the money from the sale of the home and depositing it in two separate accounts to ensure you have CDIC coverage on the total amount.
The Canada Deposit Insurance Corporation is a federal agency that insures deposits up to $60,000 per depositor when a member financial institution fails.
While the chances of a large-scale bank failing admittedly seem remote, Mr. Mastracci figures it's best to not court any amount of risk, especially given the age of your parents.
But Mr. Mastracci has some other suggestions such as Government of Canada Treasury Bills. "They're probably the safest you can get. You can sell them any time."
T-bills are available in a variety of terms but you do need a brokerage account or a discount broker account to purchase T-bills. There are no fees for such a transaction, Mr. Mastracci notes. Another suggestion is Government of Canada or provincial strip coupons.
As far the names on the account, Mr. Mastracci believes it is likely a good idea to, at the very least, have the accounts in both your parents' names since that will "usually save probate [fees]."
However, if your name and your siblings' is linked to the account that means a tax slip will be issued in all names on the account.
However, whoever deposited the capital in the account -- in this case, your parents -- is responsible for the taxes.
"What you may be doing is adding another small layer of complexity to the tax side [if you add your names to the account]. It's hard to tell you which way to go except to look at the estate and say what is best for your parents on the total basis."
While you're sorting this out, Mr. Mastracci suggests your parents revisit their wills to make sure they reflect their current wishes.
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