Taking Care of Your Disabled Children with a Registered Disability Savings Plan
No one worries more about the future than those who care for family members with prolonged and severe physical or mental impairments. The Government of Canada introduced the Registered Disability Savings Plan (RDSP) in 2007 to help parents and other family members fund the long term financial security of such persons.
The only qualification to be a beneficiary of such a plan is that he or she qualify for the federal disability tax credit and continue to so qualify for each year that the RDSP is in effect.
The RDSP is modelled after the RESP in that contributions are not tax deductible, but growth accumulates tax free in the plan and becomes taxable only when it is paid out to the beneficiary. The contributions to the plan are paid out as tax-free capital to the beneficiary. The contribution limit is $200,000 making this a useful device in estate planning for a disabled child.
In Ontario, having RDSP assets and income will not disentitle the beneficiary from receiving provincial disability income (e.g. ODSP) or other Government benefits.
Canada Disability Savings Grant (CDSG)
The CDSG provides matching contributions to an RDSP from the government, depending on ‘family income’ and the amount contributed by the family. The parental income forms part of ‘family income’ as defined by the CDSG rules only up to the beneficiary’s 18th birthday. Thereafter only the income of the disabled person and his or her spouse is taken into account. The beneficiary will be eligible to receive up to $70,000 in CDSG payments into the Registered Disability Savings Plan before the end 2 of the year in which he or she reaches the age of 49. The CDSG payments out of the plan will be taxable in the hands of the beneficiary.
Lower-income families and beneficiaries will also qualify for the Canada Disability Savings Bond (CDSB) of up to $1,000 per year to a maximum of $20,000 until the end of the year in which the beneficiary reaches the age of 49. CDSB money is taxed in the hands of the beneficiary.
As a Certified Financial Planner I can help you establish a RDSP and take advantage of the available government grants. You can telephone me at 905-984-2100 ex 27 or drop me an email at firstname.lastname@example.org to arrange a free, no obligation, one hour consultation. We can meet at my office or in your home, as you prefer.