Brenda Hildebrand’s concerns over her grown disabled son had her wondering about his future. Who will help him when she’s no longer able? How will he survive? What will he survive on?
As the Federal Retiree from Winnipeg struggles to come up with solutions, she has tapped into programs and strategies she hopes will sustain him as well as put him on what should be a path of financial independence. Yet she remains concerned about the stability of the programs and whether her son will continue to qualify for whatever is available.
“My ultimate concern is, I’m a single mom,” says Hildebrand who spent the last 10 of her 36 years with the federal government working in customs intelligence. “When I’m no longer here to advocate for him, who’s going to fill out [his disability tax credit application?]”
The Registered Disability Savings Plan (RDSP) is one of the programs Hildebrand had been able to access for her son. She found accessing the program, which helps families plan for the future of an individual with disabilities, fairly simple. But the savings program — often described as generous and underused — is reliant upon the disability tax credit, which is much more challenging to manage. There’s no way, she says, that her son will be able to complete the necessary forms, when he is required to re-apply, which they’ve been asked to do every three to five years.
The RDSP is designed to allow for the financial independence of individuals with disabilities in later years, yet, says Ottawa lawyer Kenneth Pope, it remains under the radar for many. Pope has carved out a niche supporting families such as Hildebrand’s. His Ottawa law practice provides legal, tax and estate planning services to individuals with disabilities and their families, helping them navigate the sometimes murky waters of federal and provincial programs.
“The underlying concern that the parents have is: ‘What will happen to my child when I’m gone?’” Pope says. “The parents are starting to see their own mortality…. They still have perhaps another couple of decades in their own life, but they realize that mortality is a factor.”
With some planning and support, he says, families can set up the individual with disabilities now and for future years. He describes the pension program as a significant addition to the tools that are now available.
Introduced in 2009, the RDSP becomes the property of the person with the disability. But in order to get it, the individual must qualify for the disability tax credit.
The RDSP is designed so that even those who don’t put their own money into the plan can still tap into federal government funding. Once registered, the government contributes a $1,000 income-tested bond into the plan every year for 20 years or until the individual turns 49.
Families that pitch into the plan can also tap into a matching grant on top of the bond. The family’s annual contribution of $1,500 is matched by an income-tested $3,500 government grant, which is the maximum available.
The rate of the grant is dependent upon the net family income of the individual with a disability.
“In a lot of cases it’s (family income) going to be much lower than if you were including their parent,” observes Debbie Pearl-Weinberg, executive director of tax and estate planning with CIBC Private Wealth. “(Meaning) they’re going to be entitled to a higher grant amount.”
Therefore filing a tax return for that person every year becomes important, she stresses.
The maximum family contribution, grant and bond combined means $6,000 is added to the plan balance every year. Pope calculates that if the individual opens the plan at age 18 and is able to make annual contributions to receive the maximum available bonds and grants amount for the entire 20-year period, that fund could grow up to $700,000 by the time the individual reaches age 60, if invested at five per cent.
There are rules when it comes to withdrawing money from the RDSP to ensure it is used for long-term savings, along with a formula laying out how the plan is paid out over 24 years.
Dave Lee, a chartered investment manager at Scotia Wealth Management in White Rock, B.C., points out that the first step, though, is applying for the disability tax credit through the Canada Revenue Agency (CRA). It is available to those with a severe and prolonged physical or mental disability.
“It would be wise in most cases for those getting involved with RDSPs to educate themselves on how the plans work and put some effort into finding a professional near them who is well versed in setting up and administering RDSPs,” says Lee. “This account type has not received as much attention as its generous benefits deserve.”
Lee adds that RRSPs can be rolled into an RDSP for a child or grandchild who is financially dependent on you. There is a $200,000 lifetime contribution limit from all sources. And although it is available to those with a severe and prolonged physical or mental disability, Lee points out that the first step is applying for the disability tax credit, which is where Hildebrand’s concern lies.
Hildebrand also planned for her son in her estate planning by including a Henson trust in her will. It protects the inheritance of a person with disabilities and preserves their right to provincial disability benefits. It is an absolute discretionary trust, meaning that the trustee has unfettered discretion as to investing and when to pay out money and whether they do at all. And there is no limit to how much a Henson trust can hold.
“The provincial disability benefit authorities can’t try to force the person receiving the provincial disability benefits to somehow compel the trustee to support them instead of the provincial benefits,” Pope explains. “It’s now completely accepted across Canada.”
Pearl-Weinberg adds that these approaches are well worth the time to explore, but help is often required.
“Plan, speak to an expert, make sure that you have the right plans set up for the future of somebody who is living with a disability and is dependent upon you for support,” she concludes. “There’s lots of tools at people’s disposal to help navigate them.”
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