Marnie Hall's family knew she liked to play the VLTs.What they didn't know was how indebted she was.
When her son contacted the Montreal Gazette to propose his mother as a candidate for a financial makeover, he thought she owed $15, 000 on her credit cards.
As it turns out, Hall (not her real name) owes $30,000 on five cards charging interest of about 20 per cent, plus $73,000 on a line of credit taken out on the home she inherited 10 years ago.
"We had no idea," son Jason said.
"I thought I could pay it back, but it just got worse," Hall said.
Not surprisingly, she has been finding it difficult to make ends meet.
The 74-year-old has income of about $2,650 a month. She gets $400 a month in pension benefits from her former employer, $570 a month in widow's pension from U.S. social security, $697 a month from the Quebec Pension Plan, $484 a month from federal Old Age Security and $491 from her RRIF.
She has about $73,000 in the RRIF, $44,000 of it invested in the Dynamic Focus Plus Diversified Income Trust mutual fund. (The rest is cash since her broker's recent liquidation, for a profit, of the Sprott Canadian Equity fund.)
Her only other asset is the three-bedroom house. It's in an attractive Montreal neighbourhood and has an estimated market value of $300,000.
Hall, who does not own a car, would rather stay than move, but the house is adding to the financial squeeze.
Taxes going up
Taxes are due to rise sharply after an $80,000 increase in municipal evaluation. She heats with oil. The interior is in need of a freshening and such major renovations as roof replacement and a new water line loom.
As recently as 10 years ago, Hall's financial situation was much healthier. She inherited a significant sum of money as well as the house.
But more than $50,000 disappeared in the stock market after her son recommended a change in advisers just as tech stocks began to melt down. She got into Nortel Networks just before it plummeted.
"I used to be an enthusiast of personal finance and brought her to someone I thought was more on the ball," Jason said. "I now realize my mistake. Conservative was the way to go. She took a big hit and I have to take responsibility for that."
Another $105,000 went to loans for three children and a relative, none of which have been repaid. The relative has made her the beneficiary of a life-insurance policy for the amount borrowed ($40, 000), but actual repayment is unlikely.
Hall has no life insurance policy of her own, though her former employer still provides health and dental benefits. Her will was last updated in 1994.
Jason said the children might be willing to buy the home from their mother for as much as $200,000 and let her remain there, but $300,000 would be beyond their means.
How desperate are her finances?
How desperate is Hall's financial situation? Can she get her finances back in order? Can she keep the house? Is selling it to the children a good idea? The Montreal Gazette asked adviser Martin Garneau of Majesta Financial Partners and accountants Nick Moraitis and Michael Newton of Fuller Landau LLP.
The Fuller Landau team prefaced their assessment by saying if Hall doesn't control her gambling, their suggestions are of little value and might end up making things worse because they're designed to free up cash flow.
"Marnie has lost a quarter of her wealth as a result of the gambling," they noted. "She should seek professional help to curtail her addiction, failing which the family may have to seek more serious avenues, such as curatorship, to protect her assets and financial well-being."
If the gambling cannot be controlled, the house could be sold (to the children only if they wish to pay market value), with the proceeds used to retire the debt and the rest placed in a formal trust for her benefit. The trust would be controlled by one or more of the children and an outside party to ensure funds no longer are lent out and not repaid.
They found it "very disconcerting to see a mother in her 70s so far in debt, while her children have borrowed large sums of money that would alleviate many of her current financial woes."
If the gambling is controlled, Hall could consider taking out a mortgage of $103,000 on the house to repay her credit cards and line of credit. Her debt would be consolidated and she'd save a couple of hundred dollars a month in borrowing costs. Another option is a reverse mortgage, which would not require mortgage payments, though it would eat into the equity in her home.
As for the credit cards, rip them up and replace them with one or two with a lower credit limit, and have a family member receive the statements or have some control over the account, the Fuller Landau team said.
If the children are prepared to spend as much as $200,000 to buy the property, Newton and Moraitis conclude they should also be in position to repay all or a portion of the loans from their mother, especially if she needs to finance renovations.
Counselling first step
"We trust that the family's first step will be to seek counselling for Marnie," they said.
Garneau agreed a reverse mortgage might be one way for Hall to keep the house, but "given her financial behaviour," it's probably not the ideal solution.
In his view, it would make more sense for her to sell on the open market before repairs become a burden and move into rental accommodation. That would allow her to repay her sizable debts and "avoid a lifestyle she cannot realistically afford."
Whatever funds remain could be used to purchase a prescribed annuity with a 10-year guaranty. There are tax advantages to an annuity, but the key feature is that she'd get a set amount each month rather than have a pool of capital that could quickly disappear if the gambling goes unchecked.
"Her financial problems are threefold," Garneau noted. "She has significant non-deductible debts of $103,000, she owns a house that requires costly repairs and ongoing and increasing maintenance costs that are beyond her means, and she may have a VLT addiction that could jeopardize her financial future.
"It does not help that she has received poor financial advice in the past and has lent a considerable amount of money to relatives with little chance of repayment."
|As recently as 10 years ago, Marnie Hall was in good financial shape after inheriting a significant sum of money and a house. But now she finds herself in a tight squeeze. Financial advisers say their suggestions are of little value and might make things worse if Hall doesn't control her VLT gambling.|