What happens to the money in a RDSP if plans change? Unlike the Registered Retirement Savings Plan (RRSP) or the Registered Educational Savings Plan (RESP), an RDSP may only name one beneficiary and it can never be transferred to another person. Unexpected changes in life happen to everyone, and it’s no different for families with a child or relative with a disability. However, these unforeseen changes shouldn’t affect what happens to the money saved in an RDSP. For example, in the event that the beneficiary of an RDSP passes away, the funds saved over their lifetime cannot be transferred to another beneficiary. The need to transfer an RDSP may not be a common occurrence, but the blanket restriction of transferring raises questions.
Questions such as, what happens for a family who has two children with disabilities and one of them passes away? It would make sense if the parents could transfer the RDSP to the other child with disabilities. Or what about a beneficiary of an RDSP who passes away, but has a friend with a disability that they wanted to give their RDSP to?
RULE: Currently, the RDSP cannot be transferred to another beneficiary. Period.
Policy in a box:
- The RDSP can only name one beneficiary
- The beneficiary cannot be transferred or changed
- If the beneficiary of the plan passes away – the RDSP must close by December 31 following the first full calendar year after death
- The beneficiary’s estate will receive any funds left in the RDSP after government grants and bonds are repaid. The estate may have to pay tax on part of the money it receives.
Why do other savings vehicles work so differently? An RRSP can be transferred to another beneficiary, and RESP’s can combine two people’s plans, or transfer to a sibling (with the grants and bonds being repaid). RESPs also provide the option of opening either an individual or a family plan, and the family version offers flexibility on who can access the funds. True, RDSPs will probably never be given the exact same flexibility, given that one needs to have a disability to have a plan, but couldn’t there be at least the option of transferring the account to someone else who qualifies?
We think so. What do you think?