QUALIFIED DISABILITY TRUST
In 2016, the Federal Government introduced the Qualified Disability Trust (QDT). It allows individuals who qualify for the disability tax credit to retain the benefit of graduated tax rates in their Henson trusts and other testamentary trusts. All other trusts will be taxed at the top rate of tax. It’s good news for people with more significant disabilities but is seldom available to individuals who are vulnerable with lower levels of disability.
In 2007, Financial Minister James Flaherty introduced the Registered Disability Savings Plan (RDSP). RDSPs allow individuals and their families to save for the long term by making non-deductible contributions to RDSP plans. RDSPs accumulate income free of tax. The funds are not taxed until they are withdrawn as a pension. Up to $90,000 of government assistance is available in the form of grants and bonds. All family members are allowed to contribute to the plan to support their loved ones with disabilities. Almost everyone with a disability should have an RDSP - even those who can earn a living without financial assistance.
Estate planning does not happen in some magic way through a will at the time of death. It starts much earlier in life as a family goes through the rigours of comprehensive financial planning culminating in retirement planning and finally estate planning. Estate planning should and must expand beyond basic document preparation.
Social assistance for individuals with disabilities is a provincial responsibility. Provinces across the country have their own disability support programs of one sort or another. The Henson Trust goes hand in hand with social assistance and allows it to be maintained by keeping personal support from family and friends within the social assistance limitation rules. Social assistance usually provides medical and other benefits not otherwise available without a cost.
People care - so many communities are blessed with a multitude of social service organizations that work behind the scenes. When someone in the family is confronted with a disability, community organizations do their part. Provincial government contribute locally, directly or through grants to volunteer organizations. School boards are taking on an enhanced role to provide services for children with disabilities.
Tax planning is so important and yet so neglected. Today there is more emphasis in our tax rules on social policy and fairness. More provisions recognize special situations that reduce or delay taxes and make the system fairer - where disability exists for example. There has also been a dramatic increase in tax credits because they give the same tax advantage to everyone despite their income levels. Beyond maximizing tax credits, there are other ways to reduce or delay taxes, or transfer tax credits to someone in the family who can use them.
Individuals with disabilities require both financial and emotional support and hopefully everyone participates in some way. Some families have significant financial resources but others may not. In either case, it is important that finances be structured to make a complete plan so that the actions by some do not negate planning already done by others. Doing it the wrong way could throw away government assistance. It is best to involve everyone in the family and develop an integrated family support plan.
TRUSTS AND PROPERTY OWNERSHIP
Essentially trusts have four main purposes when it comes to individuals with disabilities - 1) to retain the benefits of social assistance, 2) to hold ownership of property, 3) to make distributions for day to day needs and 4) to make use of various tax rules that accommodate the taxation of income and/or the ownership of assets in a tax effective way. Trusts are extraordinarily important in planning for individuals with disabilities.
Charitable giving can include the donation of money, time or skills. Even the smallest gift can make a difference. Involve everyone in your family and give back to your community. It feels great to know you helped someone else in need especially after you or someone in your family enjoyed a hand up in your lifetime.
You need to think differently when you consider the long-term finances of a person with disabilities. How much do you want to participate in their lives? How much do they want you to participate? Is what you are proposing fair to others in the family? It's all about balance. Choices are difficult and need time for personal reflection before drawing final conclusions and moving to a long term plan - a financial plan and a life plan.
Trusts are often an essential ingredient of planning for the future finances of a loved one with disabilities.
RDSPs - A builder of long-term savings.
They beat all other tax deferred income plans hands down.
Talk to your family about your will - start one on one and then move to a full family meeting.
It is important for families to integrate social assistance with personal finances to maximize financial help.
Not only do people in the community provide financial support through many charities and non-profits, they also provide their skills and time through various volunteer organizations.
Good tax planning can improve family resources - not reduce them.
It is important to structure support in a way that it does not impede government contributions or social assistance.
Trusts allow family members to administer the assets of a person with disabilities in a caring and personal way.
Charitable giving completes the circle.
You need both a life plan and a financial plan because unless you know how lifestyle will be structured you cannot know what the financial needs will be.