Tag: RDSP

Planning for a Disabled Child

Posted on by Chantel Gibbs

Parents of disabled children often spend sleepless nights worrying about what might happen to a disabled child if they are gone. Estate planning is very important for everyone, but particularly for parents of a disabled child because special considerations may need to be made for that child over the other children. This article outlines some of the planning opportunities, depending on what the parent wants to leave for their child’s provision.

Real Estate Property

Property like a home can be left for a disabled child in one of three ways – through the will, in a trust, or through joint title. Often when using a trust, the trust might not come into existence until after the parents pass away, but the details of how the trust will work are already prewritten – usually in the will. The will might also just simply specify that the house is left to the disabled child, giving them full control. A trust is advisable if the child’s disability is a mental one, but if it is a physical disability and they can manage their own finances, then letting the child have full control is fine. The downside of a trust is that it needs a trustee to manage it and it will need to file a tax return separately for every year that it is in existence (typically a $1000 accounting/legal fee yearly).

By far the simplest way to leave a family home to a disabled child is to add them joint on title because then it won’t even need to be part of the parents’ estate and will. This is best if the disabled child is living with the parents, is not mentally disabled, and doesn’t have another property, otherwise the principal residence tax exemption might be partially lost.

Leaving Funds

Funds can also be left for a disabled child in one of four ways – by beneficiary designation, by setting up and contributing to a RDSP, through a trust, or through the will. 

Accounts like RRSPs, TFSAs, segregated funds, and life insurance allow beneficiaries to be named so that those funds are paid out directly on death instead of having to go through the will and the estate. This can be a simple way to give extra to a disabled child while still having the will distribute the rest of the estate equally between all children. Beneficiary designations can be easily updated with the financial institution without having to update the will. 

A RDSP account is a savings accounts for people who qualify for the disability tax credit federally and the government gives matching grants depending on how much family contributes to the account every year. The RDSP is in the name of the disabled child, however, and would be part of their estate if he/she passes away. 

Funds can also be put in a trust, either while the parents are alive or created in the will upon the parents’ deaths. As mentioned earlier, a trust has additional administration and fees to maintain, but is the best for a child with a mental disability. Alternatively, the will can simply leave a higher percent of the residual estate to a disabled child, assuming the child can manage their own finances.

Communication

Whatever strategy you decide to use to provide for a disabled child, it is recommended to have a family discussion, especially if a sibling is expected to be a trustee or expected to help in managing the assets set aside for the disabled child. The only instance where parents might decide to keep it quiet is if the other children might resent the extra that a disabled child gets. In that case, gifting a life insurance policy or funds through direct beneficiary designation is the best way to quietly give extra to one child. Some insurance companies will even allow the death benefit to be paid out as a monthly allowance for the rest of the child’s life – almost like a trust but without the management cost.

If you would like to explore ways to set aside assets for a disabled child, reach out and book a meeting with me today!

A Brief Summary of Registered Accounts

Posted on by Chantel Gibbs

A Brief Summary of Registered Accounts

In Canada, there are two categories of accounts for saving money in: registered accounts and non-registered accounts. Registered accounts like a RRSP, TFSA, and RESP are registered with the government and need to follow certain rules in exchange for specific tax breaks or government grants. Non-registered accounts include basic savings and checking accounts and investment accounts. Below is a summary of the main kinds of registered accounts and how they work.

Tax Free Savings Account (TFSA)

A TFSA account allows a person to make investment income tax free. Contributions are made with after-tax money (unlike the RRSP) and the maximum contribution room increases yearly for everyone over age 18. If money is withdrawn one year, the contribution room comes back the next year so they can put the money back in again. It is a great tool for saving for a big purchase or even for retirement. To find your TFSA contribution room, log in to your CRA My Account. If you are a US citizen, you should not open a TFSA because the US does not recognize it and will still tax you on any income made in it.

Registered Retirement Savings Plan (RRSP)

RRSP and Locked-In Retirement Accounts (LIRA) are a way to defer some of your income from your working years to your retirement years. The maximum you can contribute to these accounts is 18% of your earnings up to an amount that the government sets yearly. Contributions are a deduction from taxable income and withdrawals are an addition to taxable income. The difference between the two accounts is that a LIRA or LIF account is a locked-in fund meaning that only a set maximum can be withdrawn every year based on age. An RRSP, on the other hand, has no maximum withdrawal cap and can be drawn from at any time, even before retirement. A RRSP must be converted into a RRIF at the end of the year the person turns 71. After that, a minimum amount must be drawn yearly based on age. Your personal RRSP contribution limit can be found on your notice of assessment or your CRA My Account. If your employer is contributing to a pension plan for you, your RRSP contribution limit will be reduced by those amounts.

 

Registered Education Savings Plan (RESP)

A RESP account allows someone to save for the future education of a family member or even themselves. Government grants are available if the RESP is set up for someone under 18 with a valid SIN number living in Canada. The province of BC also offers a one time grant for children between 6 and 9 years of age. There is a lifetime maximum of $50,000 per child that can be contributed to an RESP. If the child doesn’t attend post-secondary education and there is no sibling to transfer the money to, the plan can be wound up and the money given back to the contributor, but the government grants will need to be repaid.

Registered Disability Savings Plan (RDSP)

A RDSP account is particularly for individuals who qualify for the disability tax credit and have long-term disabilities. The government provides grants to help match what is contributed to the individual’s plan up to a certain amount a year. A lifetime maximum of $200,000 can be contributed to a RDSP. Contributions can be made up until the beneficiary turns 60. Family members’ RRSP accounts can be rolled in to an RDSP account without the usual tax consequences at death, but RRSP rollovers are not eligible for matching government grants.