Land Rich Cash Poor: Are You Worried That You Might Outlive Your Assets?
As we age, most of us want to remain living in our home as long as possible, preferably to the end of our days. This is especially true if we’ve lived in the same home for many years, since there is great comfort and support derived from the familiarity of not just the home itself, but also of the neighbourhood.
Every room, every tree and shrub invokes memories of years past, but with traditional safe investments such as Treasury Bills, Canada Savings Bonds and Term Deposits providing an all-time low return that doesn’t even keep pace with inflation, many seniors are anxious that they will outlive their savings, and feel compelled to consider other options.
One option that is aggressively advertised is a reverse mortgage, but seniors need to go into such an arrangement with their eyes wide open. If non-financial circumstances, such as mobility impairment, make a move necessary, get ready for a big financial shock, because the amount owing on the reverse mortgage will undoubtedly be far greater than expected. For example, a homeowner who borrowed $50,000 in 1995 under a CHIP Home Income Plan mortgage was dismayed to learn some 16 years later that, thanks to the effect of compounding interest, the debt had more than quadrupled to over $213,000!
So, what is a cash-strapped homeowner to do? One often overlooked option is to defer your annual property taxes. If your property taxes are $3,600 per year, you’d need to set aside $300 per month to cover that bill, and that $300 can make a big difference in helping make ends meet. If you or your spouse will turn 55 in this calendar year, and you have a clear title home, you can defer your taxes. You apply for the deferral once you’ve received your property tax notice but before the payment due date. The Property Tax Deferment Program Application form is available online, or at any BC Government agent office. All people on title must sign the application. The initial administration fee is $60, and then a modest $10 for each annual renewal.
If approved, the Province registers a Property Tax Deferment Agreement against the title of your home, but unlike the reverse mortgage, this loan is at a rock bottom interest rate, typically 2% below the bank prime rate, and the interest never compounds! The current rate (May-Oct 2014) is a mere 1% per annum. These extremely generous terms mean that if you need to sell, even many years later, the accumulated tax deferral bill will be surprisingly small, guaranteeing that you can still buy another home or have enough to pay for your care.
If you have questions about deferring your annual property taxes, or if you need assistance with the planning of your estate, please contact our Wills, Estates and Personal Planning Department and set up an appointment to speak with one of our lawyers.
By: Kim Floeck, Wills, Estates and Personal Planning