COMMON FINANCIAL
PLANNING TOOLS
Every Family Should
Know About
This booklet was developed for families caring
for a relative with a disability and provides
an overview of the important elements of
financial planning.
Provided by
Common Financial Planning Tools Every
Family Should Know About
It’s no secret that financial planning is complex. It not only involves saving
money but also minimizing taxes, developing investment strategies, and
utilizing all kinds of tools you may have never heard of.
When money is tight (as it is for many of us), you might wonder what the
benefits are in developing a financial plan or meeting with a financial advisor.
Regardless of your current financial situation, there are programs and tools you
can access that will make a difference to your financial future.
The tax credits, savings vehicles, and other financial strategies outlined in this
booklet have the potential to assist you in saving money and accumulating
considerable resources for your family:
Disability Tax Credit
Page 2
Caregiver Tax Credit
Page 5
Registered Disability Savings Plan
Page 6
Trusts
Page 8
Life Insurance
Page 11
While we’ve selected five of the most common financial planning tools for
families caring for a loved one with a disability, there are many others to
consider. When developing or refining your financial plan, we recommend
that you consult with an experienced financial planner, especially one who
is knowledgeable of disability-related issues and challenges. The P4P
Planning Network’s Professional Services Directory is a great resource for finding
professionals in your region.
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Common Financial Planning Tools
DISABILITY TAX CREDIT
The Disability Tax Credit is a valuable resource. It enables Canadian’s with disabilities
and their caregivers to reduce the personal taxes they are required to pay resulting in
considerable savings.
Many mistakenly believe that if someone with a disability has minimal income they
cannot benefit from a tax credit. But the Disability Tax Credit can be shared with
caregivers.
In addition to that, individuals that did not receive the Disability Tax Credit but were
DTC eligible may claim back the credit for the previous 10 years.
Is my relative eligible for the Disability Tax Credit?
In order to apply for the DTC, the individual with a disability must meet all three of
the following criteria:
• Be a Canadian Citizen;
• Have had a physical or mental disability for a minimum
of 12 consecutive months; and
• Have had a doctor certify the physical or mental disability
is a marked restriction and impacts activities of daily living (walking, dressing,
feeding, etc.)
Receiving a diagnosis of a disability does not in itself qualify a person for disability
tax credit. It is the impact the disability has on activities of daily living that
determines eligibility.
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There are many physical and mental disabilities that may impact activities of daily
living and qualify an individual for the DTC. These include, but are not limited to:
Attention Deficit Disorder
Attention Deficit Hyperactivity Disorder
Alzheimer’s Disease
Anxiety
Autism
Bipolar Disorder
Brain Injury
Cerebral Palsy
Depression
Developmental Disability
Epilepsy
Hearing Loss
Learning Disability
Paraplegia
Parkinson’s Disease
Schizophrenia
Spinal Injury
Visual Impairments
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Why should I apply for the Disability Tax Credit?
There are many reasons to consider applying for the DTC:
•
ou can receive a tax credit claim of up to $7,697 for adults
Y
aged 18 and older, as well as an additional $4,490 for
children under the age of 18 (for a total of $12,187);
•
is required to open a Registered Disability Savings Plan
It
(RDSP) and receive up to $90,000 in government matching
grants and annual government bonds;
•
It is required to receive the Child Disability Benefit
(up to $2,626 per child per year);
•
You can receive a tax deduction for disability supports; •
You can deduct eligible medical expenses; and
•
You can recoup taxes paid in prior years*
How can I apply for the Disability Tax Credit?
To apply for the DTC, you must complete Canada Revenue
Agency (CRA) Form T2201. This form has two parts to it:
•
Part A is completed by the individual or representative.
•
Part B is completed by a qualified practitioner. Qualified
practitioners include medical doctors, optometrists,
audiologists, occupational therapists, physiotherapists,
psychologists, and speech-language pathologists.
!
To learn
more about
the RDSP,
flip to Page
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* If your application
for the DTC is
approved, you may
be eligible for tax
adjustments and refunds for up to ten
previous tax years
under the Taxpayer
Relief Provisions.
To request the Disability Tax Credit Form T2201
call CRA at 1-800-959-2221 or TTY 1-800-665-0354
visit the CRA website or download here
Where can I find out more?
For more details on the DTC, review this Guide to Understanding and
Claiming the Disability Tax Credit. The following organization’s
websites also offer valuable resources on the DTC:
•
Ability Tax Group
•
Special Needs Planning Group
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CAREGIVER TAX CREDIT
The Caregiver Tax Credit, or Caregiver Amount, is another important tool for
achieving financial health among families caring for a relative with a disability.
Yet it’s not uncommon for people to miss out on this tax credit when filing
their taxes.
The Caregiver Tax Credit is $4,490 (for the 2015 taxation year). The credit is
equal in value to the Disability Tax Credit Supplement, which ends at age 18.
(Note, however, that the Disability Tax Credit itself continues until after the
age of 18.)
How do I know whether I’m eligible to claim this credit?
If at any time in the year you maintained a dwelling where you and a dependent (age 18 or
older) with a physical or mental disability lived, you may be eligible for the Caregiver Tax
Credit. The dependent must be your or your spouse’s or common-law partner’s child, sibling,
niece, nephew, aunt, uncle, parent, or grandparent.
!
To find out whether you’re eligible for the Caregiver Tax Credit, complete this
Q&A on the Canada Revenue Agency (CRA) website.
When can I not claim this credit?
This credit cannot be claimed for a person who was only visiting as opposed
to living with you or if you claim the Infirm Dependent Credit, an amount of
similar value to the Caregiver Tax Credit. Additionally, you cannot claim the
Caregiver Amount for a child for whom you have to pay child support.
Where do I go to find out more?
For more information on the Caregiver Tax Credit, visit the CRA website.
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Common Financial Planning Tools
REGISTERED DISABILITY SAVINGS PLAN
(RDSP)
The Registered Disability Savings Plan (RDSP) is a long-term savings vehicle designed
specifically for individuals with disabilities. Developed in Canada, it’s the first long term
savings program of its kind in the world.
Who can open an RDSP?
The RDSP is available to individuals who qualify for the Disability Tax Credit (DTC).
What are some of the benefits of the RDSP?
•
The RDSP allows up to $200,000 in lifetime contributions and provides
tax-sheltered investment growth. By opening an RDSP, you could be
eligible for up to $90,000 in grants and bonds.
•
Anyone can contribute to an RDSP: family, friends, neighbours.
It allows people who want to help a way to do so!
•
he money in an RDSP can be invested to grow. Depending an individual’s net
T
family income, any money saved could triple in value through government grants
and bonds. Once investment decisions are made, it can really begin to grow.
•
he Ontario government fully exempts RDSP assets and money withdrawn T
from the plan when determining eligibility for The Ontario Disability Support
Program (ODSP). (For more information, visit MCSS ODSP site.)
•
he beneficiary can choose what to do with the money when it T
comes out. Once withdrawn, there are no restrictions on how the money
can be spent.
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Where can I learn more about the RDSP?
The following are several helpful resources and links on this innovative savings
program:
P4P Planning Network delivers an introduction to RDSP webcast regularly.
Check our online event.
RDSP.com:
Visit RDSP.com for a free RDSP calculator, step-by-step guide, blogs,
tutorials, and other valuable resources on the RDSP.
You might also find the following RDSP-related website pages helpful:
Bank of Montreal (BMO)
Royal Bank of Canada (RBC)
TD Waterhouse
CIBC
Scotiabank
Employment and Social Development Canada (formerly HRSDC)
Canada Revenue Agency
Be sure to regularly check the P4P Planning Network’s
online event listings for upcoming webcast on the RDSP.
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Common Financial Planning Tools
TRUSTS
When building your long-term financial plan, it is critical to consider where a trust – an
important component of any estate plan – fits in.
A trust is a legal arrangement in which one person (the settlor) transfers legal title
to another person (the trustee) to manage the property for the benefit of a person
or institution (the beneficiaries). Put more simply, it’s a flexible document that can be
designed to meet your desires – as well as the needs of the beneficiary. In most cases, a
trust is simply a few paragraphs included in your will.
For individuals with a disability who receive Ontario Disability Support Program
(ODSP) benefits, trusts are commonly used to as a way to leave funds to him or her.
Because anyone receiving ODSP benefits is prohibited from owning assets of more
than $5,000, setting up a trust is the only way you can leave your family member an
inheritance without jeopardizing their government disability benefits.
It can be difficult to understand all of the legal terms associated with trusts.
Here’s a short list of the most common words you’ll encounter and their
definitions:
Settlor: The individual who makes the trust.
Trustee: The individual or corporation named by the settlor to manage
property that is held in a trust.
Beneficiary: The recipient of the trust. Although the trustee is listed as the
legal owner of the trust property, it’s actually the beneficiaries who are the
true owners (or beneficial owners) of the trust property.
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Why is having a trust so important?
There are two important reasons you need a trust:
1.
Trusts ensure greater financial security for your relative without affecting
his or her disability benefits.
2.
Trusts ensure that the funds you leave your relative are safe. Sadly, sometimes the
generous spirit of our relatives can be taken advantage of by unscrupulous people.
Leaving funds in a trust requiring input of trustees provides safeguards.
ODSP considers inheritances to be a financial gift and if willed to someone receiving
ODSP benefits could cause them to lose their ODSP eligibility. Leaving an inheritance
in a trust, such as a Henson Trust will not impact ODSP eligibility.
SECURING
THE FUTURE
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Common Financial Planning Tools
The two most common types of trusts are
non-discretionary trusts and discretionary trusts.
What is it?
Non-Discretionary Trusts
Discretionary Trusts
Non-discretionary trusts are
considered an exempt asset
under ODSP. As a result, ODSP
benefits are not affected if the
trust is administered correctly.
Commonly referred to as
Henson Trusts, discretionary
trusts are also considered an
exempt asset under ODSP.
Therefore, ODSP benefits
are not affected if the trust is
administered correctly.
It is important to note that
a non-discretionary trust
may have a total value of
$100,000 without impacting
ODSP benefit. If the trust
amount exceeds $100,000, the
beneficiary’s disability benefits
may be suspended.
When is it
most useful?
What else
should I know?
A discretionary or Henson
Trust is one where the trustees
have absolute discretion with
regards to spending and
managing the trust.
When there is an unexpected
settlement, such as an
insurance settlement or
inheritance.
In Ontario, the best way
to provide for our relatives
with disabilities while also
preserving their entitlement
to ODSP funding is through
the use of a Henson Trust.
Unlike non-discretionary
trusts, Henson Trusts are
effective when the value
of the inheritance exceeds
$100,000.
Keep in mind that if the
trust has less than $100,000
in contributions but earns
additional money through
interest or investments, it may
exceed the $100,000 limit.
The beneficiary would then
be disqualified from their
disability assistance.
Using a discretionary trust
eliminates the risk of the
beneficiary losing eligibility
for ODSP benefits as a result
of receiving an inheritance.
Because of the complexities of establishing an estate plan, which includes preparing a
will and setting up a trust or trusts, we recommended that you seek legal advice. You can
refer to the Professional Services Directory on the P4P Planning Network for lawyers in
your region who have expertise in disability issues.
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LIFE INSURANCE
Life insurance is another way to increase the wealth of your estate and to
improve your overall financial situation. It can help create financial security for
you and your family and, for this reason, should be considered when building
your financial plan.
Should you die prematurely, life insurance can be used in a variety of ways,
including paying any final expenses or debts, providing an income for your
family, and ensuring your family has the resources to maintain a comfortable
standard of living. While you’re living, some life insurance policies can build
tax-advantaged savings you can draw upon when needed or provide for
long-term care for yourself or a relative.
Life insurance benefits can be received long before an estate is settled
and do not incur tax and probate fees.
How is life insurance related to trusts?
For the average family, life insurance may be the only way to leave a large lump
sum to a trust by making small monthly payments. It is also possibly the only
way of funding a trust that’s guaranteed.
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Common Financial Planning Tools
How can I ensure that my relative’s disability benefits are protected?
It’s important to be aware that naming your child as a beneficiary of your insurance
policy or leaving funds to be paid by your estate to your child as part of their inheritance
could disqualify your child from receiving critical Ontario Disability Support Program
(ODSP) benefits.
To safeguard your child’s disability benefits, you can:
•
Name your estate as the beneficiary of your insurance policy; or
•
Allocate funds to be received from your insurance policy to a Henson Trust.
For more information on life insurance, contact your financial planner.
If you are looking for a financial advisor with experience working with individuals
and their families, check out the P4P Planning Network’s Professional Services
Directory.
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