Providing financial support to a loved one

03 March 2023 by National Bank
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Financial planning can be a good way to avoid unpleasant surprises. But what if a loved one needs help or financial support? With proper preparation, you can ensure peace of mind and avoid having to dip into your savings. Here are a few tips to help you prepare for this possibility.

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Are you obligated to support a loved one?

It’s only natural that you want to be there for your loved ones. But dealing with the financial difficulties of a parent or loved one can be a tricky situation, especially if your financial means are somewhat limited. It’s important to keep in mind that there are many ways to help a loved one financially, depending on your budget.

Let’s first take a look at what the law says about this.

Family solidarity: What does the law say?

The Civil Code of Québec contains the notion of family solidarity. Similar notions are also in effect in the rest of the country. In short, they indicate that you may have an obligation to help a first-degree relative, for example, your father, mother or children, with basic needs such as food, shelter, clothing, medical care, etc. Theoretically, you could be legally obligated to help a relative.

But in reality, it’s rare for a parent to go before a judge to demand support from family members. When their parents are in difficulty, children generally offer what help they can, without having to involve the courts.

Most try to support their loved ones to the best of their financial and psychological abilities. Beyond the legal obligation, for many it remains the right thing to do. 

In what instances might you have to support a loved one?

There are many possible scenarios representing different realities in terms of duration and financial responsibility. For example, a parent may need medical care, a retired parent may not have the financial means to meet their needs or a child may need a financial boost to start a business. Each case presents its own unique challenges. Here’s an overview.

Retired or aging parents

They did their best, but some parents may have planned poorly for their retirement due to lack of finances or knowledge. In some cases, even if they thought they had everything planned, economic fluctuations, inflation or unforeseen expenses can also put them in a precarious financial position. Finally, a parent may also experience a loss of autonomy due to poor health and require medical care.

A loved one who is seriously ill or disabled

Unfortunately, no one is spared from illness. A loved one may be diagnosed with cancer and no longer be able to work. They would then find themselves on disability, for an indefinite period of time, with a significant drop in income if their group insurance plan only partially covers their salary.

A loved one suffering from a mental illness

You may also have a loved one with a mental health condition who’s no longer able to work. Even if they’re receiving benefits, they may be struggling to make ends meet and pay for basic expenses.

Children who need a hand with a life project

Fortunately, it’s not all negative scenarios. Your children may also need financial assistance to buy their first home[MB1]  or car. Others may even want to start their own business and will be looking for financial support to make their projects happen.

How can you financially assist a dependant?

Between helping your child buy their first home and financially supporting an aging parent, the possible situations vary greatly. Here are just a few:

Contribute a lump-sum amount

To help a child buy a first home or start a business, you may choose to make a large one-time contribution. If you’re interested in doing this, discuss your options and tax laws with experts. There are some advantages to giving what’s called a “gift inter vivos.”

Cover all living expenses

If you need to fully support an aging or frail relative, here are the costs you could expect to incur:

  • Specialized housing, seniors’ residence, or rental accommodation
  • Food, clothing, entertainment
  • Drugs not covered by provincial health insurance plans
  • Medical care or home help
  • Specialized transportation

Pay a fixed monthly amount

If you don’t need to pay for all of your loved one’s expenses, you may want to provide a fixed monthly amount to help defray certain costs. For example, a few hundred dollars a month to put towards the cost of accommodation in a seniors’ residence or healthcare.

Hire a home support worker

If your loved one doesn’t qualify for a home support subsidy, you may be able to pay for specialized assistance (nurse, attendant, housekeeping, etc.) yourself.

How can you prepare for the future?

It’s not easy to predict how providing financial support could impact your personal finances. That’s why it’s important to start by calculating how much support you can actually provide without jeopardizing your own financial security.

Here’s how to do this.

Analyze your personal and family situation

Start by identifying loved ones who may eventually need your financial support. Is a loved one showing signs of declining cognitive health? Or are they developing motor skill problems? These are all warning signs to consider. Next, try to assess when in their life they may need your help. This will allow you to gauge at what point you will need to get involved.

Evaluate their financial needs

Assessing your loved one’s financial needs starts with calculating how much money they might need in various scenarios. For example, find out the average cost of a place in a seniors’ residence or long-term care home, what the cost of home support is, what the budget would be if you had to pay for all of their expenses, what the cost would be if you needed specialized medical equipment, etc.

Also consider how long you might have to make this contribution, and whether it’s a temporary or permanent situation. With this information in hand, you’ll already have a good idea of the situation and the amount of money needed.

Analyze your financial situation

Ask yourself if your current and future financial situation would really allow you to support a parent or loved one in need. Will the money you manage to save today be enough to meet both your personal needs and those of a loved one? Or will you jeopardize your own financial health or have to postpone some of your plans such as retirement?

You’ll also need to determine if you’ll be the only one supporting this individual. Will other family members or friends be able to help? It’s time to schedule a frank family discussion about this important matter.

At this stage, you’ll also need to think about the nature of the assistance: Is it a simple loan or a donation? If it’s a loan, what is the repayment horizon? In either case, try and evaluate the impact on your finances.

Establish an action plan

Once you’ve thought about these different aspects, you’ll then have to determine the amount that will potentially be cut from your budget.

You can then choose the best financial product for you. For example, you could regularly deposit money into a savings account, apply for a loan or use a line of credit. It’s important to note that a line of credit charges interest and you’ll need to make sure you’re able to pay it back.

As a parent, you could also endorse or guarantee a loan for your child to help them start a business or obtain a car loan. If necessary, a family trust could also be considered.

Remember, it’s important to have an honest and open discussion with your family members to consider your options and ensure responsibilities are distributed in a fair manner. Set up a family meeting to discuss the situation and then consult a National Bank advisor.

Available government resources and financial aid

If you don’t have the financial means necessary to support a loved one, you could benefit from government resources and financial aid.

Financial support for a loved one

Be aware that your loved one may eventually receive a number of government benefits, such as social assistance and the social solidarity program (Quebec), and the different programs and services for seniors (housing assistance, drug reimbursement, medical services and home support, meals on wheels, etc.).

Financial support for caregivers

Caregivers can also obtain financial support or certain tax credits. A quick reminder: A caregiver is someone who takes care of a person who can no longer live autonomously.

The Canadian caregiver amount (external link) and Canadian caregiver credit (external link) are examples of this type of support and tax credit. Employment Insurance caregiver benefits may also cover up to 55% of your salary to a maximum of $650 per week if you have to stop working to care for a loved one.

In Quebec, you may be eligible for the caregiver tax credit and the amount for other dependants. Other financial aid or credits are also available, so be sure to find out what you’re entitled to.

Talk to your financial services advisor to understand the impact these different situations could have on you. And remember: By being properly prepared, you increase your chances of being able to support your loved ones without compromising your own financial security.

Would you like to discuss this with us? Contact your National Bank advisor or your wealth advisor at National Bank Financial to learn more. Don’t have a specialist in charge of your file? 

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