Guest post by Frank Di Pietro
Financial advisors have a tremendous opportunity to help provide Canadians affected by disability with a secure financial future by introducing Registered Disability Savings Plans (RDSPs) into their financial plans. Understanding the benefits of an RDSP offers individuals the ability to provide financial security for those who may be dealing with either a cognitive or physical disability, or are caring for a family members with cognitive or physical disabilities.
Who is eligible to establish an RDSP?
To qualify for an RDSP, a beneficiary of the RDSP must:
- Be eligible for the Federal Disability Tax Credit
- Be a Canadian resident
- Be less than 60 years of age
- Have a valid Social Insurance Number
The Disability Tax Credit is available to individuals who have cognitive or physical impairments that markedly restrict their ability to perform one or more of the basic activities of living, such as (but not limited to) speaking, hearing or walking. The impairment must be expected to last more than 12 months and a physician must certify the extent of the disability. If an individual is eligible to open an RDSP, it is important to note that only one RDSP account can be set up for each eligible beneficiary (i.e., the individual with the disability). Also, there can only be one beneficiary per RDSP.
Assessing client eligibility
Disability may be obvious, or a client may have mentioned a dependent’s needs. However, many disabilities are not so apparent, and therefore advisors will need to be prepared to lead the discussion to better understand the client’s personal situation, and possible disabilities that the individuals are dealing with. Recognizing the opportunity will ensure that those who qualify do not miss a big opportunity for a number of benefits, including valuable government funding available when Registered Disability Savings Plans are created. It will be important to ask some basic questions.
- Are you or anyone in your family dealing with a physical or cognitive disability?
If yes, it is important for an advisor to understand the nature of the disability and how they may be able to better service the needs of the client. It will also lead to whether the possibility exists to set up an RDSP on behalf of the individual with the disability.
- Do you know whether you (or the individual with the disability) are claiming the Federal Disability Tax Credit (DTC) on the personal tax return?
Eligibility for this non-refundable income tax credit is a key eligibility requirement for opening an RDSP. Some clients may not be aware that this credit even exists, and could be losing out on credit that help to reduce income taxes.
- If you are dealing with a disability but not claiming the DTC, is there a possibility that you (or the individual with the disability) could qualify for the DTC?
This may allow you the opportunity to explore the situation a little further. You might consider referring, or collaborating with the individual’s tax advisor to discuss the eligibility of the DTC a little further. Qualifying will also involve the individual’s medical practitioner who will need to certify the disability by filling out a CRA form. The process might be a little cumbersome, however may be well worth all the effort. Not only does it help them qualify for the RDSP and the generous government grants, but it may also provide significant income tax savings for the current tax year. Even better, the rules allow Canadians to go back, and retroactively apply the credit as far as 10 years, or the date of diagnosis, offering clients a significant tax refund!
- Does the individual with the disability already contribute to an RDSP?
If the person with the disability already has an RDSP established, how confident are they on investment objectives and strategies? Ask for the opportunity to review the existing account, and offer a second opinion on the investment strategy and whether they have maximized the potential of the RDSP. An RDSP can be transferred from one financial institution to another. Remember, only one RDSP is available per beneficiary.
- Would your client be interested in opening an RDSP?
Using a RDSP, it’s easy for you and your client to set up a plan on behalf of someone who is eligible. You may even be able to help them apply for retroactive government benefits the beneficiary may be entitled to.
The benefits to financial advisors when offering RDSPs to eligible individuals
- Deepens your relationships by offering a long-term savings and investment plan that will build a better future for those with, or are caring for someone with a disability.
- Assists parents or grandparents caring for a dependent with a disability prepare a succession plan that ensures all tax & financial planning alternatives are explored, including special rollover rules that allow a transfer of RRSPs, RRIFs and RESPs into RDSPs on a tax deferred basis. This may help you retain the assets and build new relationships when wealth is passed to the next generation.
- Generate referrals to those who may be new to or unfamiliar with financial and investment planning.
- Offer a valuable service to centres of influence such as agencies and advocacy groups specializing in disabilities.
- Becoming a subject matter expert in planning for those with disabilities to be the financial advisor of choice, when a family member is dealing with a physical or cognitive disability.
Frank Di Pietro, CFA, CFP, is Assistant Vice President with Mackenzie Investments based out of Toronto. He is an advocate and a strong believer in the RDSP and its benefits for people living with disabilities.