What you need to know about financial assistance for a disabled child

Never Retire Profile of the Week

Carol Dweck

Carol Dweck is the 73-year-old Lewis and Virginia Eaton Professor of Psychology at Stanford University, where she has taught since 2004 after stints at Columbia, Harvard and the University of Illinois. As active today as she has ever been, Dweck is known for her groundbreaking work on the “mindset” psychological trait, made famous by her 2006 international bestselling book Mindset. In it, she laid out the findings of 30 years of research into human motivation. In particular, she shared her discovery that individuals with a fluid view of human ability (a Growth Mindset) have a much higher chance of success than those who believe that talent and ability are innate (a Fixed Mindset). Dweck’s ideas have transformed a range of fields, including education, human motivation and corporate approaches to talent development. She has also become a renowned speaker, sharing her wisdom and research with audiences around the world thanks to her own belief in a Growth Mindset and commitment to never retire.

Carol Dweck

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As a Certified Financial Planner, one of the best parts about my work is that clients call me for advice and assistance with issues they are facing. It is an honour and privilege to support people as they navigate the complexities of life.

The advice our team offers is usually a combination of technical assistance and emotional support.

Personally, I rely on my 25 years of wealth management experience to provide technical answers or solutions to a client’s situation. For example, when a client asks whether they should lease or buy a car, we run the numbers, compare the short-term and long-term financial implications, and offer a recommendation complete with pros and cons of each alternative. More often than not, clients accept our research and take our advice.

When it comes to providing emotional guidance, I have always tried to step into the client’s shoes and ask myself, “What type of support would I need if I were in their position?” Typically, I could draw on personal experiences to provide guidance, because I have lived through something similar to what the client is going through. Or so I thought.

For example, I often take calls from clients or their children explaining that a spouse or parent has died. They are calling for advice about the technical elements of dealing with an estate—such as what to do with the deceased’s investment accounts—but the conversations always have an emotional element.

Until recently, I would offer my condolences and assume I knew how the client felt. I now realize that I knew very little about the realities of grief. I was well intentioned and did my best to be supportive, but I now see that my lack of personal experience meant that my emotional support lacked depth.

This realization came to me because, as most of you know, I experienced my own loss earlier in 2020. I now have personal experience with grief that puts me in a better position to offer emotional support to anyone coping with the loss of a loved one.

My direct learning about grief has changed my thinking about how I approach emotional support for clients. I no longer presume that I can imagine my way into their shoes. And I am committed to being transparent and cautious about acknowledging my lack of emotional understanding when it comes to client situations with which I have limited or no direct experience.

One such situation is the challenges and complexities of supporting a disabled child.

When we receive a call from a parent or grandparent explaining that a child or grandchild with a disability has just been born, the caller is invariably experiencing both joy about the new arrival and worry about what the future will bring.

As I write this blog, I want to say in advance that my intention is to stick to delivering the technical details about the financial implications of supporting a disabled child. As a parent, I know what it’s like to worry about your children and want to do everything to support them. This content is offered in that spirit. But I will leave the role of emotional support in this area to those who have the lived experience and capacity to do so.

Understanding the nuances of the Registered Disability Savings Plan (RDSP)

In 2008, the Federal Government announced a new registered plan called the Registered Disability Savings Plan. It was designed to provide long-term financial security for disabled people. The new plan provides an opportunity to accumulate tax-deferred funds and government grants.

Here are three examples of situations when a RDSP might be useful:

1. Josh is a six-month-old boy with complex medical needs. His parents understand that Josh will not grow up to become an independent man. They realize their financial responsibilities will extend beyond their own deaths throughout Josh’s life. They consider establishing a RDSP to ensure that Josh has the funding necessary for his long-term care.
2. Beth is a 13-year-old girl in Grade 7 who has a severe learning disability. Her parents and grandparents would like to see Beth in her own home one day. They open a RDSP so that her parents and both sets of grandparents can contribute to the plan. Their hope is that one day, the fund will help Beth buy and maintain her own home.
3. Connie is a 25-year woman with a physical disability who works full time. She is worried that one day she will no longer be able to work or may only be able to work part time. Connie sets up a RDSP and begins saving money to top up her RRSP and employer’s retirement plan.

If you are in a situation like any of these, and are considering opening a RDSP, there is a range of considerations.

Here are ten things to know about a RDSP

1. There is no limit on annual contributions in a year but there is a lifetime limit of $200,000.
2. To assist with saving, the Federal Government offers Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs). If a family’s net income is up to $95,259, the maximum annual grant is $3,500. If the family income is above $95,259, the maximum annual grant is $1,000. There is also a maximum lifetime grant limit of $70,000 and the eligibility period for contributions ends on December 31st of the year the beneficiary turns 49.
3. From a tax perspective, there is no tax deduction for contributions but the investment growth (on the contributions and the government grants) is tax deferred.
4. If a family’s net income is below $31,120, the maximum annual CDSB is $1,000 with a lifetime limit of $20,000, payable until the end of the year in which the beneficiary reaches age 49.¹
5. Contributions are eligible for the Canada Disability Savings Grant (CDSG) until 49. However, there is a tax deferral advantage to contribute as much as possible and as early as possible (up to $200,000).
6. The plan holder can choose where and how to invest the funds in the plan.
7. You can spend the RDSP withdrawals as you wish. However, when the funds are withdrawn, there are some considerations. The original contributions are nondeductible when contributed and nontaxable when withdrawn. However, the investment income and the CDSGs and CDSBs are fully taxable to the RDSP beneficiary when received.
8. The money in the plan grows tax deferred. Over a 20 to 30 year period, these funds can compound into a large sum of money.
9. Payments from a RDSP do not impact other income-tested Federal Government programs such as OAS, GIS, CPP, GST benefit or Social Assistance. Plus, in Ontario, money held in a RDSP (assets) and money taken out of a RDSP (income) are fully exempt from determining eligibility for disability benefits.²
10. Anyone can contribute to a RDSP, including family, friends, neighbours, and charitable organizations, which enables many different people to assist with costs.

Here’s the bottom line: You can contribute up to $200,000, receive up to $70,000 of CDSG and receive up to $20,000 in CDSBs. Plus, you can earn tax-deferred growth on funds in the plan until the money is withdrawn.

I don’t personally know the challenges of raising a disabled child, yet I sincerely hope the above provides some comfort in knowing that Canada has a plan in place to help plan holders become better prepared for their financial future.

You can find additional information here.

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Call me if you in want to map out how you can Never Retire. You can also subscribe to our Never Retire Newsletter, contact us to order a complimentary book, register for one of our events, and call us to meet with a Certified Financial Planner. We offer you a range of services from a financial plan to investment advice or helping you take advantage of our investment models. Call me at 416.355.6370 or email me at richard.dri@scotiawealth.com.

¹For a minor beneficiary, the family net income is that of his/her parent. Where the beneficiary is over the age of majority, the family net income is that of the beneficiary and his spouse, if applicable.
²RDSP.com

source https://richarddri.ca/what-you-need-to-know-about-financial-assistance-for-a-disabled-child/