Advanced planning with RDSPs

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Your Finances with Stephen Maltby

A Registered Disability Savings Plan (RDSP) is an effective long-term savings vehicle that can be used to help provide for the financial security for eligible persons with disabilities.

A main feature of the plan is the availability of government funds deposited directly into the plan in the form of Canada Disability Savings Grants and, potentially, Canada Disability Savings Bonds.

What is an RDSP?

An RDSP is a "disability savings plan" (DSP), an arrangement between the "issuer" (a trust company) and one or more other entities, registered with Canada Revenue Agency (CRA), that permits contributions and government grants and bonds to be invested and used by the issuer to ultimately make payments to the beneficiary .A "DTC-eligible individual" for a particular year is an individual who has a "severe and prolonged physical or mental impairment", which.entitles the disabled person to claim the "disability tax credit" (DTC). The DTC is a non-refundable tax credit that reduces the amount of tax that an individual with a severe and prolonged physical or mental disability would otherwise have to pay. In order to qualify for the DTC, a qualified practitioner (generally, a medical doctor or other medical specialist) must certify on Form T2201, "Disability Tax Credit Certificate," that the disabled person meets the appropriate criteria set out in the Income Tax Act. 

An RDSP must generally be terminated by the end of the year following the year in which the beneficiary ceases to be a DTC-eligible individual or dies; however, starting in January 2014 there will be an exception for RDSP beneficiaries who become ineligible for the DTC but are expected to re-qualify for the DTC in the near future. The holder of an RDSP is the principal decision-maker when it comes to choosing the types of investments in the RDSP. if the plan permits, the holder can determine both the amount and/or timing of payments from the plan.

The holder can be the disabled person, a legal parent or guardian, tutor, curator or public department, agency or institution that is legally authorized to act on behalf of the beneficiary, as discussed below in the definition of "qualifying person." The beneficiary’s age and mental capacity will determine which of these persons or entities will be the holder . A legal parent can only open a plan as the holder if the beneficiary is their child and a minor. (Temporary rules in effect until the end of 2016 provide an exception where an adult beneficiary’s contractual capacity is in doubt, as described at the end of this section.)

Other than where the disabled beneficiary’s legal parent opened the RDSP when the beneficiary was a minor, an entity can no longer be a holder of the RDSP if that entity ceases to be a qualifying person. So, if a legal guardian of a minor child (who is not the child’s parent) opens up an RDSP for a child, once that child reaches the age of majority, the guardian would no longer be the plan holder. Either the beneficiary would become the holder, or if not mentally capable, whoever becomes the guardian of the adult beneficiary would become the holder.

Note that a legal parent is specifically exempted from this condition so as to prevent a child from forcing a parent to give up control of the RDSP; however, upon reaching majority, the child has the right, but not the obligation to become a holder to act.

 

Stephen Maltby is an Investment Adviser and Chartered Accountant with CIBC Wood Gundy. He has been in the financial services industry for more then 30 years and has held various accounting, investment and management positions with several accounting and investment firms over the years. He is in addition to his Advisor role a First Vice-President and Executive Director Atlantic Canada, CIBC Wood Gundy.

 

 

Organizations: Canada Revenue Agency, Canada Disability Savings Grants, CIBC Wood Gundy

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