Tax-assisted Registered Disability Savings Plans first became available in December 2008 and, with their third year anniversary fast approaching, the government has launched a formal consultation process to solicit the views of stakeholders as to how to improve the plans.
RDSPs allow parents, beneficiaries and others wishing to save on behalf of someone with a severe and prolonged disability to contribute up to a lifetime maximum of $200,000 for the long term savings of the beneficiary.
Perhaps the most attractive reason to open up an RDSP is to get access to the annual Canada Disability Saving Grants (CDSGs) which can provide 100%, 200% or 300% matching grants, depending both on the beneficiary’s family income and the amount contributed, up to a lifetime maximum CDSG limit of $70,000.
In addition, RDSPs may also attract up to $1,000 in Canada Disability Savings Bonds (CDSBs) annually for plans established by low- and modest-income families, up to a lifetime CDSB limit of $20,000.
While contributions to an RDSP are not deductible and are not included in the beneficiary’s income when withdrawn, CDSGs, CDSBs and investment income earned, which grows tax-free while inside the plan, are taxable to the beneficiary when paid out of the RDSP.
One of the issues the government is soliciting feedback on is who can be plan holder. The plan holder makes decisions regarding RDSP contributions, investments, and withdrawals.
Once a beneficiary reaches the age of majority — 18 or 19 depending on the province — that person must become the plan holder, unless they are mentally incapable. In that case, only the legally appointed guardian of the beneficiary can fulfill that role. Getting someone, including a parent, named as a legal guardian involves a court process that can involve a great deal of time and cost on the part of the disabled person’s family. It is a stressful process many families are reluctant to go through.
One solution, similar to what is available in B.C., could be to institute a more streamlined process, short of an actual declaration of mental incapacity but not requiring the disabled person to have the legal capacity to give a power of attorney. The B.C. process allows for a disabled individual to appoint a trusted person, such as a parent or friend, to manage resources on behalf of the disabled individual. If this is a potential solution, the government should confirm that such an individual can indeed open and operate an RDSP.
As part of the RDSP consultation process, the government is asking all provinces and territories whether this may be an appropriate solution and soliciting feedback from anyone interested for alternative proposals.
Jamie Golombek, CA, CPA, CFP, CLU, TEP is the managing director, tax & estate planning with CIBC Private Wealth Management in Toronto.
Last Updated: Oct 31, 2011 11:42 AM ET