Parents of disabled children who have been waiting to take advantage of the new federal Registered Disability Savings Plan will have to wait at least another year before financial services institutions will be ready to take their cash. That’s because the federal government has yet to finalize many crucial aspects of the RDSP.

It does, however, give advisors time to educate themselves about how these complex plans are likely to work.

Still, the wait is frustrating for Graeme Treeby, a father of three whose youngest daughter has cerebral palsy, developmental delays and other issues. Treeby is an insurance broker who provides free advice to families through his organization, the Special Needs Planning Group in Stouffville, Ont.

“I haven’t been able to find anyone who has been able to do it for us yet. And, believe me, I want one,” Treeby says of the RDSP, a new way to create a nest egg for disabled children that is allowed to grow tax-free. “We’ve been searching high and low.”

The RDSP is similar to the Registered Education Savings Plan, which allows parents to contribute to a fund; the contributions are then supplemented by government grants. The RDSP legislation received royal assent on Dec. 14, but JoAnne Hayes, senior manager of corporate communications for Bank of Montreal, says banks can’t launch the program right away.

“The government has a planned implementation date of December 2008,” Hayes says. “This is when the government anticipates its systems will be ready and, therefore, the earliest any financial institution could offer RDSPs will be late 2008.”

Rina Cortese, senior manager of wealth-management communications for Royal Bank of Canada, estimates an even longer lead time — 18 to 24 months from now: “RBC is very supportive of the launch of the RDSP. While RBC is committed to helping families take advantage of this new program as quickly as we can, without having the final details and understanding the complexity of the program, it is difficult to say exactly when we will be able to offer it to clients. Once we have the details and final regulations, we will be in a better position to provide an expected launch date.”

What is known is that RDSPs can be established on behalf of those who are eligible for the federal disability tax credit. Either the beneficiary, his or her parents or legal representative can establish an RDSP.

The plan will consist of three main elements, according to the federal Department of Finance:

> Contributions will be limited to a lifetime maximum of $200,000 and will be permitted up until the end of the year in which the beneficiary turns 59.

> Contributions will qualify for Canada Disability Savings Grants at matching rates of 100%, 200% or 300%, depending on family income and the amount contributed, up to a maximum lifetime grant limit of $70,000.

If family net income does not exceed $74,357, the matching rate on the first $500 of contributions will be 300%, and the matching rate on the next $1,000 of contributions will be 200%. If family net income exceeds $74,357, the matching rate on the all contributions will be 100%.

An RDSP will be eligible to receive grants only up until the end of the year in which the plan beneficiary turns 49. The income thresholds are for the 2007 taxation year and will be indexed to inflation for 2008, when RDSPs become operational, and for subsequent taxation years. Family net income will generally be determined in the same manner as for the Canada Education Savings Grant, except that, for years after the year in which the beneficiary turns 18, the relevant income will be that of the beneficiary and his or her spouse or common-law partner.

> Canada Disability Savings Bonds of up to $1,000 a year will go to RDSPs established by low- and modest-income families, up to a maximum lifetime bond limit of $20,000, and will not be contingent on contributions. The maximum annual $1,000 bond will be paid to an RDSP for which family net income does not exceed $20,883. The bond will decline gradually for those with family net income of $20,883 to $37,178. An RDSP will be eligible to receive bonds up until the end of the year in which the plan beneficiary turns 49.

@page_break@Contributions to an RDSP will not be deductible and will not be included in income when paid out of an RDSP. However, the grants, bonds and investment income earned on a tax-free basis in the plan will be included in the beneficiary’s income for tax purposes when paid out. Only the plan beneficiary, or the beneficiary’s legal representative, can receive payments from an RDSP. Payments must begin by the end of the year in which the beneficiary turns 60.

Finance says a recent report from the Expert Panel on Financial Security for Children with Severe Disabilities noted that for the RDSP program to be effective, RDSP assets should not disqualify a plan beneficiary from receiving provincial or territorial income support provided to persons with disabilities.

British Columbia has stated RDSPs will be fully exempt as assets when determining eligibility for disability support. Withdrawals made from an RDSP in B.C. will not reduce the amount a client may be entitled to receive through regular provincial disability assistance payments. In addition, assets in an RDSP will be exempt when calculating a client’s eligibility for monthly provincial disability assistance.

Ontario has not made a similar promise, but Quebec has announced its intention to exempt RDSP income up to the low-income threshold set by the Institut de la statistique du Qu»bec.

It’s important to note that if a child’s disability improves to the point that he or she is no longer eligible for the DTC, any grants or bonds paid to the plan in the 10 years preceding the end of the tax credit eligibility must be repaid and the plan collapsed, says Janet Freedman, a financial planner with Finance Matters Ltd. in Toronto.

“That’s one of the things that could potentially bite people,” Freedman warns. “For planners and advisors, I’d want them to understand there are lots of potential ramifications. It’s going to be a bit of a learning curve for advisors.”

Freedman, who broke her neck in a fall about seven years ago and has co-written a book on financial planning and disabilities (Hit By An Iceberg; www.hitbyaniceberg.ca to order), says an RDSP should form just one part of a larger financial plan, including annuities. IE