Advisors say family planning for a disabled child includes setting up appropriate life insurance for relatives, a Henson trust, registered accounts and taking advantage of provincial and federal programs.
“You want to make sure that a person with special needs will receive appropriate care when the parents are no longer there,” said Joseph Trozzo, vice president of national investment sales and MGA at Equitable Life in Toronto.
Trozzo has a son with autism who played soccer in the Special Olympics.
Insurance
Parents can purchase a last-to-die permanent joint life policy for themselves to fund a Henson trust and term income protection insurance, said Ron Malis, a financial advisor at Reegan Financial in Toronto, which serves clients with disabilities.
Another option is to consider purchasing life insurance on your grandparents’ lives. “It takes a village, especially when you have someone in your life with special needs,” Trozzo said.
Henson’s trust
Assets held in a Henson trust for the benefit of an individual with a disability are not considered to belong to that individual and do not place the individual at risk of eligibility for asset-tested government benefits.
Almost anything can be transferred to a trust. For example, parents can designate a second property to exempt it from capital gains tax upon death, Malis said.
Advisors should talk to their clients about the Henson trust as soon as possible. This is only allowed if the testator includes it in their will before they die, Malis said. They should also choose reliable trustees and connect them with specialists such as advisors and accountants.
Parents can name more than one trustee, as well as reserve trustees for the Henson trust, said Guerlane Noël, assistant vice president of tax and estate planning at Mackenzie Investments in Montreal. For example, one trustee may have expertise in finance, while the other may have a background in health care.
Tax relief for people with disabilities
The tax relief for people with disabilities (DTC) is a non-refundable tax credit for people with severe and long-term disabilities that last at least 12 months. Applicants need a doctor to complete the form, and qualifications may be temporary or permanent.
In addition to tax benefits, DTC certification is the key to success qualifying for several federal programs, such as the Registered Disability Savings Plan (RDSP) or Canada Disability Benefitwhich will begin distributing up to $200 per month to eligible beneficiaries in July 2025.
Registered savings plan in case of incapacity for work
There is no annual contribution limit to the RDSP, which has a lifetime cap of $200,000. The RDSP may also receive matching grants each year. Families earning below a certain income threshold can receive subsidies of up to $70,000 with $30,000 in contributions over 20 years.
“The design of an RDSP is almost always obvious,” Malis said.
If there is enough room for contributions, families can transfer their grandparents’ registered retirement fund (RRIF) to the RDSP, Noël said. This will defer taxes on the RRIF, so it is only due when you withdraw from the RDSP.
Registered Education Savings Plan
Families with more than one child can set up a Registered Family Education Savings Plan (RESP). If a child with special needs does not pursue post-secondary education, his or her siblings may benefit from the funds, Trozzo added.
“No restrictions should be placed on (a child with special needs), but it will be a challenge for him to pursue post-secondary education,” he added.
Any unused individual RESP funds can be transferred to an RDSP, but any government contributions to the RESP must first be repaid, Malis said.
Ontario Disabled people support program
In addition to federal programs, provincial disability support programs may also be helpful. For example, the Ontario Disability Support Program (ODSP) pays up to $1,368 per month for a single person.
Although benefits may be stopped or withdrawn if the recipient exceeds certain asset or income limits, there are exceptions. Under the ODSP, anything held in a Henson trust, as well as life insurance products worth up to $100,000, are tax-free as chargeable assets, and payments from an RDSP account are not considered taxable income, Malis said.
If a child with special needs receives an inheritance that might make them ineligible for ODSP, the assets can be deposited into the RDSP or transferred to a segregated fund, Malis said. However, separate withdrawals of funds constitute chargeable income.
Financial transfer
A child with special needs may outlive his or her parents, so parents should involve the next generation of caregivers in the process from the beginning. These could include the trustees of the Henson trust or the child’s siblings, for example, Trozzo said.
They should provide information such as medical care instructions, the name of the doctor and details from the last will and testament to make the transfer as smooth as possible.
Trozzo’s son eats a grilled cheese sandwich every day, but he won’t eat it unless it’s cut a special way. “If this information isn’t captured… you’re going to be scratching your head, thinking, ‘Why isn’t he eating grilled cheese anymore?'” he said.
New caregivers should also attend financial planning sessions with a financial advisor to fully understand the strategy for using various registered accounts and government programs, Trozzo said.
Proper financial planning can help ease parents’ anxiety, Trozzo said. “God forbid, if you’re not here or your spouse isn’t here, you have a plan ready. … When you go to bed at night, you can put your head on the pillow and say, “I know that financially, my special needs child can handle it.”
