Long-term planning for disabled children

Navigating through programs can be a big challenge

Parents worry about having the short and long term financial resources needed to accommodate their disabled children’s special needs.

There is some help in the form of government disability assistance programs, but navigating through those programs can be a big challenge. Here’s what you need to know.

Utilize tax credits: The Disability Tax Credit (DTC) and the Child Disability Benefit (CDB) offer some financial relief. When you apply for the DTC on behalf of your minor child, the Canada Revenue Agency (CRA) will advise you if you are also eligible for the CDB supplement to the standard Canada Child Benefit*.

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. However, the CDB is reduced if your adjusted family net income is more than $65,000.

RDSP for long-term planning: Consider setting up a Registered Disability Savings Plan (RDSP) with your DTC-eligible disabled child as the beneficiary. 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 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 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 – so start an RDSP as soon as possible.

Set up a trust: Practical estate planning tools for parents of disabled children include life insurance and trusts, specifically Henson trusts. Effective in most provinces, a Henson trust 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.

Financial planning for the parents of children with disabilities is complex. Speak to your professional advisor about the best strategies for your situation.

*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. Redemption may require repayment of the CDSG and CDSB.