March 17, 2016 Meeting: Legal & Financial Planning


Halldor K Bjarnason – Access Law Group Barrister and Solicitor Specializing in Disability Trust Planning, halldor@accesslaw.ca  604.697.0231

Tina Cheung – Vancity Wealth Planner
Sonesh Chikhlia – Vancity Wealth Planner

Registered Disability Savings Plan

Tina Cheung spoke briefly on the federal Registered Disability Savings Plans. RDSPs can be established for your individual with a disability at several Canadian banks, including VanCity. To be eligible the supported individual:

  • must be eligible for the Disability Tax Credit
  • must have a valid Social Insurance Number
  • must be a Canadian resident when the RDSP is opened
  • must be under age 60

An RDSP augments the contributions made by the person setting up the plan for a person with a disability with government grants. These Canada Disability Savings Grants (CDSG) may be as much as $3500 per year with a lifetime limit of $70,000, based on the Beneficiary’s family income. For Beneficiaries over the age of 19, the Beneficiary’s family income is considered to be the individual’s income together with that of their spouse, if there is one. Total contributions of up to $200,000 are allowed and can be made until the Beneficiary turns 59. As well, the Canada Disability Savings Bond (CDSB) is available to low income beneficiaries, in amounts up to $1000/year, with a maximum lifetime limit of $20,000, up to the time when the Beneficiary turns 49. The amount paid is based on family income alone (not dependent on contributions). New Beneficiaries, including an adult who has been diagnosed later in life (assuming that they can provide a doctor’s certificate of their existing condition) can back-date their Plan to 2008 when RDSPs became available. Payment of the RDSP must begin at age 60; however, withdrawal of contributions are permitted by the Beneficiary at any time, but will result in the loss of a portion of the grant & bond amounts paid into the RDSP over the previous 10 years. The portion to be repaid is 3 to 1 – that is $3.00 of accumulated grant/bond money for every $1.00 of contribution withdrawn.

The topic of eligibility for Community Living BC (CLBC) or Person With Disability (PWD) support was raised but deferred. Douglas Lee, a psychologist who determines eligibility for CLBC funds and services will speak at our April meeting. However, Tina mentioned that Vancity works with Equal Futures, who can assist with obtaining a Disability Tax Credit Certificate for a potential RDSP beneficiary. See Additional Resources below.

 

Estate Planning and Disability Trusts

Halldor Bjarnason has extensive experience in the area of disability inheritance law and has set up many trusts for families with members with disabilities.

Halldor began his presentation by emphasizing the importance of having a Will. It gives you control over your estate, in that it permits you to appoint an Executor to manage your affairs, to appoint a guardian for any minor children, to distribute your estate in the amounts and to whom you wish, and to establish Trusts to protect vulnerable Beneficiaries. Without a Will that appoints a guardian for minor children, custody is given to the Ministry of Children & Families, and custody of their estate is given to the Public Trustee.

Halldor provided us with the following definition of a Trust: A relationship where one person (the Settlor) gives assets to a second person (the Trustee) to hold and use for the benefit of a third person (the Beneficiary). A trust within our Will for a family member with a disability makes our wishes clear in a way that is less likely to be legally contested. A discretionary trust is not regarded as an asset, and therefore, will not result in a reduction of our Beneficiary’s disability assistance payments, whereas an inheritance would.  As well, it allows us to specify a person or persons who will be responsible for ensuring that the inheritance is allocated in the best interests of our family member. For example, Trust funds can be used to provide the Beneficiary with medical aids, caregiving or home support costs, education or training costs, maintenance or renovations to the Beneficiary’s principal residence, and rent costs above the allowance for housing in the disability allowance, without resulting in claw backs of the Beneficiary’s disability assistance benefits. The role of the Trustee(s) is to determine the Beneficiary’s needs, to responsibly invest the Trust’s assets, to keep records and to pay taxes. As such, more than one Trustee, each with different skill sets, (3 is good) may be preferred. Aside from selecting the type of Trust, the number and choice of trustees (including professional trustees), what the trust can be spent on, and how its assets are to be invested, we also need to consider if there are conflicts of interest for the Trustees (are they personally affected by the disbursement of funds to the Beneficiary?), to ensure an ultimate beneficiary (the person to whom the remainder of the trust is paid after the death of the beneficiary), and a continuity of Trustees. Halldor noted that Trust agreements are a specialized area of law, which requires a lawyer who is has experience preparing disability trusts, and who is able to answer the question, “How does my family member’s disability status affect my estate planning?”

After the meeting, we wondered how applicable this is to our Square Peg families, many of whom do not receive disability funding, and whose supported person is often capable, in large measure, of managing their own affairs. Halldor’s view is that the estate planning should be customized to our circumstances, and those of our supported individual. For families with a fully mentally competent Beneficiary, it may be a case of weighing, or balancing between different options.  For example, if an estate is small, a Trust can be set up where the Beneficiary can be their own Trustee – but the Trust is deemed “non-discretionary” and must be $200,000 or less, for individuals who are recipients of disability benefits. Over this amount, it would be considered an asset, and render the individual ineligible for BC Disability assistance.  Another option is to roll the person’s share of our estate into an RDSP, also with a $200,000 contribution limit. However, if the Beneficiary is younger (under 50), a large contribution made at once would mean that the individual would lose access to the grants and bonds. On the other hand, this approach would not incur the taxes that an inheritance would, if is rolled over from the parent’s/grandparent’s RRSP/RIF.  To overcome the shortcomings of a large single contribution to an RDSP, Halldor recommends using a Trust to make annual contributions to the RDSP – which provides the leverage necessary to maximize access to grants/bonds.   For larger estates, Halldor often recommends both a discretionary trust with an independent trustee (unlimited) and a non-discretionary trust with the beneficiary as trustee ($200K limit) – with the caveat that one needs to  ensure  that the two are not intermingled.

 

As you can see, care needs to be taken to ensure that the interests of our supported individual are served after our death, and this is a specialized area of law, which requires input from an advisor with experience with disability estate planning.

 

Additional Financial Resources 

In acknowledgement that CLBC funding is independent of claiming a Disability Tax Credit, and therefore, applying for an RDSP:

The Equal Futures RDSP program is provided by Ability Tax & Trust Advisors, supported by VanCity. “It is a social purpose program that provides an easy , efficient and free service to eligible individuals to learn about, qualify for, and open an Registered Disability Savings Plan (RDSP). As a prerequisite to opening an RDSP, Equal Futures will assist in determining and applying for a Disability Tax Credit.

www.equalfutures.ca   1-855 773-7377  info@equalfutures.ca

 For tax assistance:

The Community Volunteer Income Tax Program (CVITP) is a collaboration between community organizations and the Canada Revenue Agency (CRA). Community organizations host tax preparation clinics and arrange for volunteers to prepare income tax and benefit returns for eligible individuals who have a modest income and a simple tax situation.

www.cra-arc.gc.ca/volunteer/

 The Disability Alliance of BC’s new Tax Aid program, see below for details and video:

www.disabilityalliancebc.org/ourwork_new.htm

 For those with a more complex tax situation:

David Chiu, BBA, CGA, CFP, is an accountant and financial planner who specialist in assisting familities with a member with a disability with their taxes and financial planning.

david@davidchiucga.com           604.731-0611