Lifestyle | When the sale of the house gives you wings

The situation

Brigitte*’s partner, 66 years old, died last year. “I found myself with a large house and a large plot of land that requires too much maintenance,” she says. It’s too much stress now that I have to deal with it alone. »

“Even though this will be another bereavement, I have decided to sell,” continues the widow.

She plans to move into an apartment, but then wonders if buying another property would be a better idea.

Real estate brokers analyzed comparable properties sold in the area and estimated the market value of his house at approximately $850,000.

She doesn’t dare believe it.

In recent years, home maintenance has cost on average $5,000 to $6,000 per year. Soon, she will have to make repairs which will amount to $20,000, but she already has this amount in the estate account, she specifies.

“I spend on average a total of $3,100 per month, including the maintenance of a 2022 car already paid for and two trips per year of approximately $4,000 each. »

Brigitte would like to live in a four and a half or larger apartment. Rents for apartments available in his area are between $1500 and $2000.

“I would like you to help me figure out how much rent I can afford and for how long. »

She wants to find an apartment according to her means, but does not know them.

When the house is sold, the sixty-year-old plans to give $200,000 to Audrey*, her only daughter. “Then, it will depend on my financial situation,” she explains. Otherwise, she will inherit when I die. »

Taking into account this donation and the new rent to pay, she knows that she will still have a significant amount left. “I would like to know what the best strategies are for investing the remaining money and what I should consider. »

Brigitte has a retirement fund and savings. His RRSP and TFSA grew following the death of his lover, because the amounts from the deceased spouse’s RRSP and TFSA are transferred to the surviving spouse, without a tax bill.

About half is placed in GICs. “I have a fairly conservative investment profile,” she emphasizes.

The advice

Antoine Chaume Legault, financial planner and wealth management advisor at Gestion de Patrimoine Assante – Brossard, analyzed the file.

“From the outset, we see that Madame is already in an extremely appreciable financial position with a retirement fund, government pensions, and this, without considering the value of her current investments, nor even the value of the property which will be sold,” relates the financial planner.

Brigitte has more resources than she thought. Is moving to an apartment a wise choice?

Although this issue has generated a lot of ink, the financial planner has no doubts about Brigitte’s choice.

“In a context where she lived with someone and is now alone in a large house, where maintenance costs are high, becoming a tenant will simplify her life and give her financial wings,” says Antoine Chaume Legault .

In order to answer Brigitte’s other questions, he drew up her financial portrait.

Antoine Chaume Legault took into account the cost of living of $3,100 per month indicated by Brigitte. He then added a monthly rent of $2,000 per month, because she can afford that amount, and even added another $2,000 to her for travel.

The amount from the sale of the house is added to his income from investments, retirement funds and annuities from the two governments.

If she obtains a price of $850,000, Brigitte will have to pay a commission to the real estate broker of approximately 5% plus taxes. After fees, the planner estimates she’ll pocket $800,000. Then, by subtracting the gift she wishes to make to her daughter Audrey of $200,000, she will be left with $600,000.

In a first scenario, the planner calculates that by spending $70,000 net per year, Brigitte will reach the age of 100 without ever eating into her capital.

“She could even afford $30,000 more and spend up to $101,133 net,” he says.

“As a financial planner, when you see that someone is in such a financial situation, the conversation is geared towards the dreams to be realized and what this person wants to accomplish. »

“Maybe the life she leads now is satisfying too,” he continues. If this is the case, I advise him to opt for a succession optimization strategy. »

Tax optimization of inheritance

First of all, should she withdraw more from the RRSP than necessary in order not to leave the RRSP as an inheritance to her daughter? When an RRSP is bequeathed to a spouse, it is transferred without taxes to be paid. But in the case of a child, the RRSP amount is taxed as income.

However, before taking action, there are calculations to be made, because disbursing RRSPs can have an impact on the Old Age Security pension. In 2024, when a Canadian has income that exceeds $90,997, they must repay part of the federal pension.

For example, if Brigitte declares $100,997 in income, she will have to repay 15% of the amount of income that exceeds $90,997, or 15% of $10,000, which corresponds to $1,500.

Brigitte already has gross income of almost $90,000. “It is therefore not a good idea to withdraw her RRSPs before she is obliged to do so at age 71,” concludes Antoine Chaume Legault.

As for the amount of the sale of the house, he insists. Brigitte must not invest the $600,000 in GICs.

“The interest income will add up and she will reach income that will cause her to lose part of her Old Age Security pension. It’s really not beneficial. »

“It could go for what are called corporate class strategies with exchange-traded funds or mutual funds. Instead of having interest or dividend income taxed each year, it would instead accumulate a capital gain which will be taxed only when the fund is sold. »

His TFSA is also invested in GICs. Even if the interest earned is tax-sheltered, Antoine Chaume Legault also advises him to invest the TFSA in products that generate more income when the GICs mature.

“There are capital protected notes offered by different banks which distribute between 8 and 11% interest every month. By investing $100,000, she would have $10,000 net, tax-free. »

Another important piece of advice: at the start of each year, Brigitte must absolutely transfer the maximum amount allowed ($7,000) into her TFSA.

Still with the aim of optimizing taxation and if she is in good health, Brigitte could also take out life insurance.

For $500,000 in coverage, a 66-year-old non-smoking woman pays $12,250 per year. If she dies early, she will have invested little so that her daughter will inherit $500,000. If she dies at age 100, she will have a return of about 4%.

“I know she is still managing the estate, but it is important that she updates her will and her incapacity mandate,” advises the planner.

If Brigitte considers that her only daughter has always managed her money in a reasonable manner, she could fill Audrey’s TFSA at the beginning of each year.

She could also contribute to her daughter’s CELIAPP and even to her RRSP.

“Fiscally, it would be an excellent idea. »

* Although the case highlighted in this section is real, the first names used are fictitious.