A Registered Disability Savings Plan (RDSP) , is a matched savings plan created specifically by the Canadian government for qualified citizens, under the age of 60, with disabilities. This unique savings plan allows you to create long-term financial security and will help lift the heavy burden of planning for the future of your loved one with special needs.
With the introduction of Registered Disability Savings Plans (RDSPs), the federal government has now made it possible for someone dependent on their disability benefits to invest for retirement with large sums of money without affecting their disability, OAS or GIS payments. Tax-sheltered contributions of up to $200,000 and very generous tax grants and bonds of up to $90,000 per person are available. Individuals who cannot afford to make any investments may still qualify for up to $20,000.
Whether you have little or no money to invest, have very low income, or can care for your loved one financially, will add the financial freedom of your loved one in the future. With an RDSP you will also be eligible for government bonds of up to $20,000 and grants of up to $70,000.
Do you or a loved one have a disability that interferes with making a living or requires ongoing care? Do you worry about the individual’s long-term security?
The financial challenges and opportunities affecting someone with a severe and prolonged mental or physical impairment are unique and constantly changing. Working closely with a trusted financial advisor to plan for the individual's well-being is therefore essential.
This article touches on some of the key challenges and opportunities for an individual with a disability and what families can do about them. Note that the article is not intended to be comprehensive. Please contact our team at Investment Planning Counsel (IPC) about your personal family situation to evaluate all options in more detail before taking action.
People with a disability and their supporters face a distinct set of financial challenges throughout their lives. For one, they typically have higher medical bills and living expenses than most people. These extra demands on cash flow may affect the financial stability and lifestyle of the family. To maximize cash flow, families need to take advantage of all available government programs and tax breaks.
Second, while individuals with a disability need to accumulate assets for the future just like everyone else, they may come up against a wall in doing so. The dilemma is that if they earn more than a certain low threshold, income from government programs may be cut back. Fortunately, there are legitimate strategies to minimize these restrictions.
A third concern is the prospect of how the disabled individual will be taken care of upon the death (or disability) of a key caregiver. Complicating matters is the fact that income from an inheritance could erode government benefits for the individual. Again, solutions are available through effective planning with a professional advisor.
For a family member with a disability, we will focus on a number of specific strategies to build up assets, minimize tax and create an estate plan.
At Investment Planning Counsel, our mission is to help families plan for financial security and live their dreams. We have the specialized expertise and disciplined process to address all aspects of a client’s financial life. Since our inception in 1994 we have advised families in all kinds of situations, including many living with a disability.
When a family member has a serious disability, it is imperative that an integrated approach to finances be taken – not just with the various financial planning areas for the individual but also the family as a whole. It is also important that any specialists involved do not work in isolation without an understanding of the full picture. Through our network of specialists, we can connect you with the people you need to see, while acting as the intermediary who knows your complete family situation and is committed to your long-term security.
Members of our IPC team will sit down with your family to discuss your aspirations and concerns, help you articulate your goals and then develop a plan to achieve them. The overall plan we design, called your Personal Wealth Management Strategy, serves as the blueprint for recommendations of products, services and advice. It covers portfolio management, risk management, a banking review, estate and tax planning and regular progress reviews after that to keep you moving toward your goals.
In terms of providing long-term financial security for the individual, the recently introduced Registered Disability Savings Plan (RDSP) is so attractive that it can be used as the cornerstone of their financial plan. Through generous government contributions, RDSPs encourage families to save for the future of someone who qualifies for the Disability Tax Credit.
Central to the RDSP’s great appeal is that your family’s contributions may attract government grants worth up to $70,000. Those who cannot afford to make any investments may still qualify for up to $20,000 in bonds. The RDSP is eligible for government assistance until the year the individual turns 49. The RDSP is so compelling; it can be used as the cornerstone of the disabled individual’s financial plan.
Similar to Registered Retirement Savings Plans (RRSPs) and Registered Education Savings Plans (RESPs), contributions to an RDSP grow tax-free until eventually withdrawn by the individual, when earnings and government contributions (but not the contributions themselves) will be taxed at what may be a low rate. Importantly, the disability assistance payments will have no impact whatsoever on the individual's federal government benefits such as Old Age Security, Canada Pension Plan and the GST/HST credits to name just a few.
Tax planning is another priority area for all families, but especially for those touched by a disability. By taking advantage of all available tax breaks, families can maximize income left for living expenses and to save for the individual’s future. Here are just a few tax strategies to consider:
We would be happy to discuss these and other possibilities with you. As part of our client service, we will keep you updated as the tax rules evolve.
The goal of estate planning is to ensure you and your dependants are protected from risks during your lifetime and to plan for a smooth transition of assets to heirs upon your death, while minimizing tax. If you have dependants, especially one with a disability, you'll want to keep your will updated, including named guardians for any dependants. If you are a primary income earner in your family, you’ll also want to consider life, disability and critical illness insurance for yourself, as well as long-term care (LTC) insurance to help pay for your own care later in life, if needed and preserve your estate for your heirs.
Continuing powers of attorney for property and personal care should also be in place in case a family member or other caregiver becomes mentally incompetent and is unable to make decisions for themselves or on behalf of a disabled relative.
Discretionary trusts have often been used to meet the needs of an individual with a disability while also preserving government disability payments. However, for many families, the RDSP and related grants as part of a well-thought-out plan may provide much of the resources needed to support the individual through life. Until RDSP contributions are maximized, parents could include a bequest in their wills to top up the plan. Thanks to changes in the 2010 federal budget, the RRSPs and RRIFs of deceased parents or guardians may now be rolled over tax free to an RDSP, within the disabled individual’s limits. The rules and conditions are complex, so professional advice is needed when incorporating an RDSP into your estate plan.
The main advantage of a discretionary trust versus an RDSP is that a trust can have multiple beneficiaries while the RDSP can have only one, and on the death of that beneficiary the funds must be paid to the individual’s estate. A trust provides the opportunity to share assets with other family members, according to your instructions.
To learn more about these and other strategies geared to families living with a disability, please contact one of our professionals at IPC. We would be happy to provide a complimentary financial review and point out strategies which could be of value.
Working in partnership together, we can build a plan for all of your loved ones and bring peace of mind and comfort to everyone in the family.
In order to qualify for an RDSP, your loved one must be receiving the Disability Tax Credit. This tax credit is full of it’s own financial benefits and is the starting point for making sure your loved one is financially secure. In combination with an RDSP, your Disability Tax Credit will help grow this financial security.
While this savings plan may be complicated, you do not have to do it alone. The RDSP Guy, Ken White, Branch Manager of Guelph Financial with Investment Planning Counsel, can help you through every step of the process. Ken will ensure that you receive the maximum benefits you are entitled to under the RDSP program.
Once you have set up your RDSP, Ken will continually monitor your plan to make sure it is complying with all rules and regulations set out by the Canadian government, ensuring that you receive the most money possible. Contact us to learn more about RDSP’s in and to start securing the financial future of your loved one with a disability.