Advising parents of children with disabilities

Here are some pointers you can offer these clients:

> Open An RDSP

Most advisors will agree that no family of a disabled child under the age of 49 should be without a registered disability savings plan because of the grant and bond components of the plan.

Depending on family income (or, for disabled Canadians over age 18, personal income), the government grants between 100% and 300% of RDSP contributions, up to a maximum of $3,500 a year. Bonds, up to $1,000, are also added, even for those who are unable to contribute in any given year.

“I don’t know of any other program in the world that is quite as generous,” says Brendon Pooran, a Toronto lawyer who specializes in estate planning for individuals with disabilities and their families.

However, RDSPs do have limits. The maximum lifetime contribution to these plans is $200,000; there is an additional $90,000 maximum in government grants and bonds. And, as Graeme Treeby, co-founder of the Special Needs Planning Group in Stouffville, Ont., points out, RDSPs are more like pension plans than savings plans. They are designed to bridge the retirement savings gap between those who are disabled and those who are not.

Because RDSPs have been created to address the compromised earning capacity of disabled individuals (who often can’t save for “retirement”), RDSP withdrawals must adhere to a strict formula that weighs more beneficially later in life.

> Do Eligible Clients Know About Available Benefits?

Ensure that client families supporting a child with special needs are receiving the tax credits and benefits that are available. Because the process to claim disability benefits can be onerous (physicians must fill out the application form; some claims are initially rejected), there are millions of dollars of unclaimed credits each year, according to the Planned Lifetime Advocacy Network, an organization that provides information to families of people with disabilities.

Clarify with your clients the severity of a child’s disability as part of the know-your-client process, so if the child is eligible, he or she can begin to receive disability and caregiver credits. The child might even be able to recoup unclaimed tax credits from previous years.

> Help Your Clients Protect Their Benefits

Once the need and eligibility for benefits has been established, the next step is to ensure that those benefits are protected into the future. Your role as an advisor, says Treeby, is to help your clients understand the importance of protecting whatever provincial assistance benefits an individual is entitled to once he or she becomes an adult.

Every province has its own rules when it comes to benefits eligibility, so it’s up to you to become familiar with the requirements in your province or to work with someone who specializes in the area. For instance, the Ontario Disability Support Program, which starts at age 18, prohibits anyone with more than $5,000 in liquid assets from qualifying for assistance. Some assets, such as a primary residence, are excluded. But savings tools that advisors traditionally encourage parents to adopt — even something as simple as a savings account in the child’s name — should be discouraged for disabled children.

Says Treeby: “You have to make sure things are structured appropriately.”

> Set Up A Trust (Or Two)

For families going through the will-planning process, says Pooran, a number of options are available to offset the potential negative consequences of an inheritance.
@page_break@The main strategy is the use of a Henson trust, a discretionary trust that allows parents to set aside assets for their son or daughter by attaching guardians to the financial instruments — such as life insurance proceeds and pension death benefits — to help support the child. There are no limits to the amount that can be held in the trust.

Also, there are fewer limitations when it comes to taking lump sums out of a Henson trust, according to Treeby. The first $6,000 withdrawal has no impact on an individual’s benefits in Ontario. Withdrawals above that amount may also receive special exemption status if they help the disabled individual function in the community, he says. Again, this varies by region, but the list of exemptions can be long and can include items such as bus passes, computers, companion and attendant care, and even vacations — if it can be argued that these purchases contribute to the disabled individual’s well-being.

Inheritance trusts — which are non-discretionary — can sometimes be added to the mix, says Pooran, depending on provincial rules. But because these vehicles are discretionary, they have asset limits, above which they will affect public assistance benefits. Ontario, for example, imposes a $100,000 limit on any capital and income in this type of trust.

> Choose Trustees Wisely

The selection of trustees is the area most fraught with tension for families of children with special needs, according to Pooran. After all, he says, the client is leaving a trustee with potentially hundreds of thousands of dollars to manage for the benefit of his or her son or daughter, with the trustee having absolute discretion in how the money is handled.

A sibling may seem like an obvious choice. But, Pooran warns, choosing a sibling often presents an inherent conflict of interest because the sibling usually is the residual beneficiary of the trust.

Appointing several trustees to work together can alleviate this potential conflict while also allowing a checks-and-balances approach toward decision-making, according to Pooran. “Depending on how it’s drafted,” he says, “the parents can say the majority rules, that every decision must be unanimous or that one person has veto power.”

It’s also a good idea, Pooran adds, to name at least one trustee who has some expertise in financial planning and record-keeping. And aim to have at least two trustees close in age to the disabled person.

Treeby agrees: there’s no point in appointing Grandma and Grandpa as the trustees when they’re likely to die long before the person with the disability does.

> Update Your Records

Remind parents of disabled children to update all of their financial instruments to ensure that they don’t inadvertently affect their child’s ability to collect government assistance upon their death. Beneficiary information on life insurance proceeds, pension death benefits and other investment vehicles should be structured in such a way that they won’t jeopardize their adult disabled child’s eligibility to collect benefits, Pooran says. It’s not enough to make these declarations in a will, he adds. Each piece of the puzzle must be consistent with the next.

Urge parents to ensure their power-of-attorney designations are up to date, Pooran says. Furthermore, parents should revisit their wills every few years to reflect whatever changes might be needed. For instance, an adult disabled child may develop a personal connection with someone who could make for a more beneficial trustee relationship than the beneficiary designated when the disabled individual was young.

Pooran also points out that parents sometimes struggle with not knowing just how “able” their disabled child might be throughout adulthood. Again, this is an area in which the right trustee choices can make a significant difference.

For example, if circumstances evolve and the adult disabled child is not on social assistance, is fully employed and doesn’t need someone administering their funds on their behalf, it might make sense for the trustee to liquidate the trust. That would be up to the trustee’s discretion, Pooran says, and can’t be directed in a parent’s will. IE