Planning for Loved Ones with Disabilities
Dave Lee CIM, CFP, FCSI
Senior Wealth Advisor
Scotia Wealth Management
If you have loved ones who are among the 1.3 million Canadians who qualify for a Registered Disability Savings Plan (RDSP), you may want to consider whether they have an active RDSP and whether your estate plans are aligned to make optimal use of this benefit. In British Columbia, the government fully exempts RDSPs when calculating an individual’s eligibility for provincial disability assistance.
Parents or grandparents of a financially dependent child or grandchild can arrange for some or all of their RRSP or RRIF to be rolled over to their child or grandchild’s RDSP when they pass away. The rollover amount, plus any contributions made to the RDSP prior to the rollover, cannot exceed $200,000.
Government grants, called Canada Disability Savings Grants (CDSGs) are more generous than most people realize. The first $500 contributed is matched at 300% and the next $1,000 is matched at 200%.
This means a $1,500 annual contribution will provide $3,500 of grants each year. It would take 20 years of making $1,500 contributions to reach the lifetime maximum of $70,000 in grant money, at a total cost of $30,000. For those with family incomes above $95,259, the grant amount is reduced. When family income is below $31,121, another $1,000 is available even if no contribution is made to the plan.
Since RDSPs have a lifetime contribution limit of $200,000, it may be optimal to limit RRSP/RRIF rollovers to $170,000 to ensure the 300% and 200% matching grants continue to be available in the future.
It is also worth knowing that you can reach back up to 10 years to claim unused matching grants. When doing so, a maximum of $10,500 in grants can be received each year. A client of mine, we’ll call her Kathryn, recently opened an RDSP. In her case, a $3,500 contribution this year provided $10,500 in grant money.
Kathryn will continue to catch up on $10,500 of grants per year until 2023, and then she will continue on the path of making $1,500 contributions that provide $3,500 in grants.
If I could encourage one idea regarding RDSPs to become more widespread, it would be that you do not need to become an expert in RDSPs to benefit from them. You just need to work with a knowledgeable wealth advisor who can guide you through the process and explain the parts that are relevant to you or your loved one.
Scotia Wealth Management
This is for informational purposes only and is not intended as advice. Please contact your financial advisor for further information.