Walker Brown was born with a rare syndrome that leaves him totally dependent on others for life’s basic necessities. He requires lifelong supervision and support in his living arrangements. Brown is the subject of the book The Boy in the Moon, written by his father Ian Brown, which delves into the emotional turmoil that so many parents of disabled children experience. These feelings are often inextricably woven with worries about short- and long-term financial resources required to accommodate their children’s special needs.
The day-to-day care of a disabled child can consume a family’s income, making planning – perhaps even beyond your own lifetime – even more stressful. One of the biggest challenges is navigating the government’s disability assistance programs.
Utilize tax credits
For families with disabled children, the Disability Tax Credit (DTC) and the Child Disability Benefit (CDB) offer some financial relief. The good news is that when you apply for the DTC on behalf of your minor child, the Canada Revenue Agency will advise you if you are also eligible for the CDB supplement to the standard Canada Child Benefit.
There are different ways to determine eligibility. You’ll need a medical practitioner to certify that your child has a severe and prolonged impairment and describe its effects. If your child is eligible for both the DTC and CDB, you can transfer the non-refundable DTC from your child to your own income tax return, and also receive tax-free CDB up to $227.50 per month. It’s important to note though that the CDB is reduced if your adjusted family net income is more than $65,000.
RDSP for long-term planning
When it comes to long-term planning, consider setting up a Registered Disability Savings Plan (RDSP) with your disabled child as the beneficiary (who must be DTC eligible). The money that you or your friends and family invest in an RDSP grows tax-deferred and is eligible for matching government grants up to a lifetime maximum of $70,000, in addition to a potential maximum of $20,000 in government bonds.
You can contribute up to a lifetime maximum of $200,000 to an RDSP, though new contributions can only be made until the end of the year in which your child turns age 59. These contributions aren’t tax deductible when you make them, but the portion of each withdrawal consisting of your original contributions will be tax-free. The portion of any withdrawal that includes bonds, grants or investment income will, however, be taxable to the beneficiary. Since RDSPs are designed for long-term savings, you may have to repay the government grants or bonds generated in the 10 years preceding a withdrawal.
That, along with the gradual accumulation of bonds and grants, is good reason to start contributing to an RDSP as soon as possible.
Set up a trust
Other practical estate planning tools for parents of disabled children include life insurance and trusts, specifically Henson trusts. These types of trusts, effective in most provinces, give the trustee absolute discretion in determining how a trust’s assets are distributed. Typically trust assets are not considered property of the disabled trust beneficiary for the purpose of their provincial disability benefit eligibility. A will and power of attorney, particularly if you’re making decisions for your disabled child, are also critical elements of this plan.
Parents of children with disabilities will encounter more complex financial planning scenarios. It requires a delicate balancing act between your and your family’s needs, and the special needs of a child who may require care well into the future.
The Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) are provided by the Government of Canada. Eligibility depends on family income levels. Speak to an Investors Group Consultant about special RDSP rules; any redemption may require repayment of the CDSG and CDSB.