The success of a pro- posed “disability savings plan” will depend on the provinces’ co-operation and the participation of financial institutions and advisors. The DSP concept was recommended in mid-December by a panel appointed to help families provide financial security for children with severe disabilities.

Federal Finance Minister Jim Flaherty supports the panel’s recommendations, says Jim Love, chairman of the panel, a partner with Toronto law firm Love & Whalen and CEO of Legacy Private Trust. “The minister says it will be in the 2007 budget.”

However, unless the provinces agree to amend their social assistance regulations so monies received from DSPs are not clawed back from provincial benefits received by disabled people, the new program will be simply a federal/provincial transfer.

Getting the provinces onside will be key, agrees John Dowson, executive director and co-founder of Newmarket, Ont.-based LifeTRUST Planning, which specializes in estate planning for people with disabilities. Dowson was one of several contributors to the panel.

For many Canadians with disabilities, provincial social assistance is their sole source of income, says Love. Disabled Canadians are treated under provincial law as if they are able-bodied people who should be entering the workforce, he adds, which means that most live on approximately $10,000 a year.

For example, says Dowson, disabled people in Ontario are permitted $979 a month. If the person gets a Canada Pension Plan payment of $700, he says, the province pays only $279.

“Many disabled people look forward to turning 65,” says Laurie Beachell, a panel member and national co-ordinator of the Winnipeg-based Council for Canadians with Disabilities. “The benefits for seniors are better than the benefits for disabled people. That’s a sad statement on a society.”

The panel’s report cites a Statistics Canada survey conducted in 2003 that identified 3.6 million — one in eight — Canadians as having a disability so severe that their daily activities are limited. Five per cent of that number are children under age 15.

That translates into a small market in DSPs for financial advisors. But, says Dowson, most advisors know someone with a disabled child. “Advisors should find out how many of their clients have a disabled child. They should take care of these people,” he says.

The panel was asked to examine a range of existing and potential savings vehicles and recommend an appropriate instrument that could be implemented.

In December, the panel released its report to the federal Finance Department, recommending DSPs with matching disability savings grants, similar to the registered educational savings program and its matching grants.

The panel also recommends the development of a Canada Disability Bond, which could be used by families without the financial resources to save — enabling them to contribute to a DSP. This bond would be modelled after the Canada Learning Bond — a grant used to kick-start an RESP for the child of a low-income family.

LOW-INCOME FAMILIES

“The RESP-based model is more skewed toward low-income families, which is what we really wanted to do,” Love says. The investment income in a DSP eventually would be taxed in the hands of the beneficiary, who would be in the lowest income tax bracket.

Under RESPs, there are no tax deductions for contributions, but matching grants by Ottawa make them an attractive savings vehicle.

The panel has proposed that, for the first 20 years of a DSP, families with incomes of $72,756 or lower (those in the lowest and second-lowest tax brackets) should be eligible for an annual disability savings grant of $3 for every $1 contributed, up to $500, and $2 for every $1 contributed for the next $1,000 contributed in that year. For families in higher tax brackets, the grant should be $1 for every $1 contributed, up to $1,000 in any year.

The panel recommends that no grants be given once an adult-disabled child reaches 49 years of age.

DSP bonds are to be limited to $1,000 a year for the first 20 years of a DSP for families with income of less than $20,881. This amount is the average total income of individuals who claim the disability tax credit for themselves.

Eligibility for a DSP will be determined on the same basis as eligibility for the disability tax credit — Section 118.3(1) of the Income Tax Act refers to “a severe and prolonged mental or physical impairment” that impairs the individual’s ability “to perform a basic act of daily living.” (For more details, see www.fin.gc.ca/news06/06-079e.html. )

@page_break@Love concedes that the small market for DSPs will not garner much profit. However, he says, several senior bankers have told him they could offer DSPs as an extension of their present services.

Either the beneficiary or his or her guardian can register a DSP. However, the panel recommends no restriction on who can contribute to a DSP. That way, if there is a community fundraising drive for a disabled child, for instance, the community would be able to put the money into one of these plans.

Only one DSP could be set up for an individual. There would be no annual contribution limit, but a lifetime limit of $200,000 has been proposed.

Like an RESP, the lifetime limit prevents inappropriate income-splitting by wealthier parents. But the panel chose not to recommend an annual limit as a way of moti-vating families to save.

Actuarial studies looking at different contribution levels and timelines have shown that a lifetime limit of $200,000 is the capital sum that would generate a reasonable amount of income over a reasonable period of time. The lifetime limit also accommodates a large one-time donation — for example, when a child’s grandparents downsize their home and contribute the proceeds to the child’s DSP.

The panel has recommended that there be “no minimum period” that a DSP be in place before withdrawals can be made. It does, however, recommend an annual maximum withdrawal. The idea is to make sure the plan lasts over the beneficiary’s lifetime, Love says.

Upon the death of a DSP’s beneficiary, proceeds of the DSP would go to the beneficiary’s estate. IE