Does one of your loved ones have a disability? When it comes to planning for their financial future and security, you have two main options: an RDSP (Registered Disability Savings Plan) or a Henson Trust. These are two very different financial options with several advantages and disadvantages. Knowing the difference can help you choose the right option for your loved one.
A Henson Trust is a legal trust where assets are put away for someone who has a disability. The person with the disability has no access to these funds, and instead must have a trustee. Having a Henson Trust means they can generate up to $6,000 per year in income, but everything else that comes out of the trust must have a valid reason or need. Valid reasons include housing, wheelchairs and other medical expenses.
The main issue with the Henson Trust is that you have major restrictions on taking money out of it, yet this disadvantage is offset by the fact that you can set up a Henson Trust in hardly any time at all. If you decide this is the option for your loved one, you can have one set up tomorrow. However, the cost of running Henson Trust is high, as you need a lawyer and an accountant to help manage it.
An RDSP is a long-term savings plan made up of personal contributions and matching grants and bonds for people with disabilities. The plan holder is the person who controls the investment, and the beneficiary receives the contributions and government proceeds. The beneficiary can also be the plan holder.
To get an RDSP, the beneficiary must be a Canadian citizen with a social insurance number, and they must be eligible for the disability tax credit. To set up an RDSP for a beneficiary, they also have to be under 60 years of age. Grants and bonds that are contributed to the RDSP are only issued until the beneficiary is 49.
The maximum contributions are much more generous with an RDSP compared to a Henson Trust. RDSPs allow a lifetime maximum of $200,000 in personal contributions, $70,000 from grants and the government and $20,000 in bonds. This is retroactive as far back as their disability tax credit qualification or 2008, and income tax must be submitted even if there is no income.
With the RDSP, there are no restrictions on what you spend your money on and when you take it out. It also has the added benefit of not affecting any ODSP (Ontario Disability Support Program) or any government benefits. However, the money must stay in the RDSP for 10 years after the last year’s contributions to avoid any government holdbacks.
Financial planning for your loved one can be complicated and stressful. Let us make the process easier for you by doing all of the work for you. Contact us today to find out how we can help.