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<< back to all ArticlesAISH and Estate Planning in Alberta: Part II
AISH and Registered Disability Savings Plans
This is the second in a series of blog posts on AISH and estate planning. For an overview of important considerations regarding AISH eligibility and AISH trusts, see Part I here.
This second post focuses on Registered Disability Savings Plans (RDSPs), their eligibility criteria and benefits, and RDSPs as an estate planning tools for individuals receiving AISH benefits.
RDSPs are special registered savings plans intended to help individuals who receive the federal Disability Tax Credit (DTC) save for their long-term financial stability.
There are three key parties related to RDSPs:
- The Holder is the person who opens an RDSP and makes or authorizes contributions on behalf of a Beneficiary. Provided certain conditions are met, there can be more than one plan Holder at a time.
- The Beneficiary is the person for whom the RDSP is opened and for whose benefit contributions to the RDSP are made. A Beneficiary must meet certain eligibility criteria noted below.
- The Issuer is the financial institution that offers RDSPs.
To Become the beneficiary of an RDSP, an individual must meet certain eligibility criteria. An individual must:
- Be approved for the DTC;
- Have a valid social insurance number;
- Be resident in Canada when the plan is entered into; and
- Be under the age of 60.
An individual may be the Beneficiary of only one RDSP at a time; however, there may be multiple plan Holders at once, and the Holders of an RDSP may change over time.
Who can open an RDSP depends upon the age of the Beneficiary (particularly, whether the Beneficiary has reached the age of 18), and whether the Beneficiary is contractually competent to enter into the plan. Parents and guardians can open an RDSP for a minor child, and certain qualifying family members can open an RDSP for adults with disabilities in appropriate circumstances. Details regarding who can open an RDSP, and how the Beneficiary’s age and contractual competence impact who can open an RDSP are available from the Canada Revenue Agency here.
Unlike some other registered accounts, contributions to an RDSP are not tax deductible; however, there are several benefits of RDSPs that may assist individuals with disabilities in building savings.
Among the significant benefits of RDSPs are that individuals may be eligible to receive the Canada disability savings grant or Canada disability savings bond. Whether an individual may receive the grant or the bond depends on the beneficiary’s adjusted family net income. Individuals eligible for the grant will receive grant funds based on the amount contributed to their RDSP, up to an annual maximum grant amount. An RDSP can get up to a maximum of $3,500 in matching grants in one year, and up to $70,000 over the beneficiary’s lifetime. The bond is available to low-income individuals up to a certain threshold. Individuals eligible for the bond can receive up to $1,000 per year and up to $20,000 over the beneficiary’s lifetime, with no requirement of making contributions to receive the bond.
There is no annual limit on the amount that can be contributed to an individual’s RDSP; however, there is an overall lifetime limit for a particular Beneficiary of $200,000. By making contributions over time, individuals and families can benefit from annual contributions of the Canada disability savings grant. In appropriate circumstances, a Beneficiary may receive a rollover from a deceased individual’s Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) into their RDSP, up to a maximum rollover of $200,000. As such, families can incorporate RDSPs into their estate planning to ensure that children or grandchildren with disabilities are looked after. More information regarding RDSP limits, transfers, and rollovers is available from the Canada Revenue Agency here.
Contributions to an RDSP can be made up until the end of the year in which the Beneficiary turns 59.
Withdrawals from an RDSP are treated differently depending upon the source of the funds. Contributions that are withdrawn are not included as income to the Beneficiary when withdrawn from an RDSP. By contrast, the Canada disability savings grant, Canada disability savings bond, investment income earned in the plan, and proceeds from rollovers are included in the Beneficiary’s income for tax purposes when withdrawn from the RDSP. Understanding how funds from these different sources are treated for tax purposes is important for effectively making use of an RDSP and understanding the potential impacts of withdrawals.
As noted in the previous post in this series, AISH considers RDSPs to be exempt assets. Exempt assets do not impact a person’s eligibility for AISH benefits. As a result, RDSPs can be a useful tool for individuals with disabilities to build savings while preserving their entitlement to AISH benefits.
In circumstances where an individual receiving AISH benefits receives inheritance or other significant sums of money, opening or contributing to an RDSP can assist in preserving the Beneficiary’s eligibility for AISH benefits, while also granting access to RDSP benefits like the Canada disability savings grant or Canada disability savings bond, as applicable.
Contributions to an RDSP can be combined with other estate planning strategies, like establishing a trust, in order to preserve access to AISH benefits and to plan and provide for the financial security of individuals with disabilities. Accordingly, families can consider a combination of strategies in developing an estate plan that provides ongoing support and security for loved ones with disabilities.
For assistance with estate planning, trusts, and planning for individuals receiving AISH benefits, contact our Wills, Estates & Trusts Team.
This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.
