Estate planning is a key process for all individuals but becomes particularly critical for those who are parents of children with disabilities, due to the complex and often sensitive nature of their circumstances.
Recent research by the Rick Hansen Foundation found that, not only are much fewer disabled individuals in Canada in employment compared with those without a disability, almost 15% of those with a disability are living below the poverty line. These statistics are frightening when you consider the fact that they are less likely to have the ability to live independently in the future and are therefore much more reliant on the financial support of their family throughout their lifetime. This can naturally put a big strain on the family’s finances and many parents worry greatly about their ability to provide sufficient income to care for the needs of their disabled child both now and in the future.
Estate and financial planning are vital
There are some key things that parents can consider when planning their estate, in order to ensure that their disabled child or children are well cared for in the future.
Firstly, understanding the size of your estate is the first step to planning it effectively. A good way to do this is to draw up a detailed list of assets and liabilities to determine a net estate which is to be distributed as part of your will. Secondly, it is crucial to really evaluate what the specific future needs of your child are likely to be and what level of support that they will need on an ongoing basis, so that you can ensure that you can provide for them effectively. Questions such as where they will live, how much day to day support they will require and whether or not they will be able to work are critical to being able to plan ahead.
Families of disabled children can benefit from a number of government initiatives to support them in their financial planning processes but, unfortunately, due to lack of awareness and other factors, too few families are taking advantages of them. Here are some of the most beneficial support mechanisms available:
If your child is deemed to have a severe and prolonged disability (eligibility criteria apply), your family could be eligible for two types of tax credit – the Disability Tax Credit (DTC) and the Child Disability Benefit (CDB). It is worth noting that the parent is able to transfer the non-refundable DTC to their own income tax return from their child, as well as receiving the CDB on a tax-free basis.
RDSPs can be set up for disabled children, whereby they are the beneficiary and you invest on a tax-deferred basis into the plan, with the Canadian government matching contributions in the form of grants. This can add up to up to $70,000 across a lifetime, plus the addition of up to $20,000 in government bonds.
There are certain conditions to the contributions made to the RDSP, such as a lifetime contribution maximum of $200,000. While contributions aren’t tax deductible when made, the part of every withdrawal that consists of the original contribution is tax free.
Henson trusts are a specific type of financial arrangement which offer the trustee full discretion in deciding how the assets that form the trust are distributed. If considering setting up a Henson trust, a clearly structured will and power of attorney are vital. One of the key benefits of such trusts is the fact that beneficiaries are able to receive a gift of any amount without it impacting upon their eligibility to provincial or territorial disability benefits.
Naturally, making financial arrangements and estate planning for a disabled child can be a delicate and complicated process but is well worth the effort in order to provide a secure and comfortable future for your child.
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