RDSP: Disability Savings Plans

Then too, Canada Disability Savings Grants and Bonds can add a further $70,000 (grants) and $20,000 (bonds) up to the year a beneficiary turns 49.   To age 17, grants and bonds depend on parents’ income.  After that they depend on income of the beneficiary (and spouse if applicable).

It’s sad so many have never applied even though they could qualify for Disability Tax Credit and the RDSP.  Good news is, applying can open a floodgate of new money.  If someone would have qualified in and since 2009 but failed to apply until 2019 (ie. they lost ten years) they can seek carry-forward grants up to $35,000 and bonds up to $10,000.  (Two stories, see below.)

Before the stories, here are two links with further information on how to draw income as well as preserve any other income-tested federal programs  (CPP, OAS, GIS, GST credits, social assistance benefits).   Be aware also, there are a few procedures to follow if a beneficiary dies or overcomes their impairment.

• Personal Benefits in an RDSP.
• Frequently Asked Questions.

COMPARING HIGH/LOW INCOME FAMILIES.

Jane and Jack have a handicapped daughter named Jill.  One parent has a modest income and the other is full-time caregiver.  Their net family income currently is a penny under $30,000 so we’ll say they are low-income.   If these parents open a RDSP with just $1 Canada will match that with $3 of CDSG plus $1000 of CDSB …for a net account value of $1,004.   That’s fast!  But also if life had been so busy that they never applied until Jill was 10 years old, the $1 deposit could be matched with $3 CDSG plus ten years of savings bonds … that’s $10,000 of CDSB …for net account value $10,004.  That’s amazing – would you agree?

So it’s plain to see in this low-income scenario:  even for a “buck” families with a qualifying member should at least contribute $1.  (If Jane and Jack even deposit just $100/month they would generate the maximum federal CDSG + CDSB at $4,500 per year.  In ten years with 6% growth they could have over $200,000 — a vast nest egg compared to the $12,000 they invested.)

Now with Jill’s grandparents let’s see a high-income scenario.  Consider over their longer years they have saved well and expanded their wealth.  Now what?  Say they want to contribute the max $200,000.  Grants and Bonds aren’t based on them but on the income of Jane and Jack.   We’d be careful to design gifts and deposits to optimize grants:  this is very flexible for families to contribute within their means, anywhere up to $200,000.  And going forward, all growth remains tax-sheltered.

Some family discussions begin with aging parents or grandparents.  Mark at 35 is paraplegic from a diving accident at 18.  His parents Mary and Mel want to support their son without forfeiting his provincial support and drug benefits.  From their Wills, or even as beneficiary from their RRSPs, RRIFs or other savings (by Mark’s age 49) they can contribute up to $200,000 to Mark’s RDSP.  Correctly designed this will increase Mark’s financial resources for life, insulate his provincial benefits, and shift the parents’ high-tax assets to Mark’s low tax rate.

NB:  over age 17 the RDSP beneficiary needs a Will (if competent to make one) or provincial laws of intestacy will come into force at the beneficiary’s death.   Henson Trusts are also key for wealthier families, fitting alongside the RDSP to support the dependent for life, while carrying over to other family or philanthropy after the dependant’s passing.  These are matters for which we want to include consultation with a dedicated estate lawyer.

Less than one in ten homes who could qualify for RDSPs today actually own one.  This is a vital opportunity to think of who you know, regardless the extent of their disability, and how we can assist in disability savings and securing their life income.