Transcript Slide 1
Special Needs Planning
Presented and created by:
David Yurich, B.Comm., CFP®, RFP, CLU
Director Private Client Group, Senior Investment Advisor
Special Needs Planning
Provide for our communities', sons & daughters
with a disability → ”Quality of Life” they are
entitled to it now and when we are gone
Protect their entitlement to Ontario Disability
Support Program & other Government Programs
Must be certain that the planning that is done,
does not infringe on government regulation (s)
Ensure children cannot outlive the benefits they
derive from our planning
Special Needs Planning
As parents, want guarantees in place to ensure
intentions are met after we are gone
Fairness to Siblings:
Common theme not to burden non disabled
children with responsibility of caring for disabled
sibling
Parents realize these children either lead or will
lead their own lives
Ensure plans are simple & effortless
Proper balance between needs of All children
Special Needs Planning
Goals
What the disability and caregiver tax credit means to you and your
family
Why creating a Henson Trust, via a Testamentary Trust Will is so
important to you and your family
How we can use the tax savings to offset the creation of these
trusts
How we can use the tax savings to offset the long term funding
costs these trusts
Explore the reality and importance of long term financial and
estate planning
Review the current benefits offered through the Ontario Disability
Support Program Benefits
Explore the newly created Registered Disability Savings Plans
with a focus on the available Canada Disability Savings Grant and
the Canada Disability Savings Bonds
Disability (DTC) & Care
Giver Tax Credit (CGTC)
Copy of DTC in package
– Package contains: Federal DTC Certificate and a list of
current Qualified Medical Expenses Tax Credit items
Must be completed by parent and qualified
practitioner
What constitutes the qualification for DTC ,
CGTC
DTC & CGTC…
“Why Bother?”
Max DTC transferred from child (2012 tax year)
$7546
Additional Supplement $4402 (Child under age
18-offset with child care expenses)
Total possible Tax Credit $11,958
Tax savings range $1,131 - $1,792 (real $$)
Retroactive to date of diagnosis - can go back
10yrs or more ($11319 - $17,937)
Source: 2012 Federal Schedule 1 (T1 General)
Care Giver Tax Credit
Children with disabilities possibly
grow up to be adults with
disabilities
Tax credit $4402 – Income
dependent
In addition to DTC
“Medical Expense”
• Don’t qualify for DTC or CGTC, then claim all associated
medical expenses
• Claim medical expenses for yourself, spouse or common
law spouse partner & children born 1994 or later
• List of “Eligible Expenses” in kit
Source: 2012 T1 General Income Tax Guide
Will Kits…Not the answer for
families of people with
disabilities
Kits advertised on Radio @ very low cost
Advertisements suggest replacing a competent
lawyer to complete Wills by filing out blanks on a
questionnaire
Concern → Don’t ask the right questions regarding
special needs
We encourage retaining professional legal advice
with individuals who specialize in this field
Testamentary Trust Wills &
The Henson Trust
What is it
????
Trust that arises on death through a Will
Creates legal relationship between the Settlor, the
Trustee & the Beneficiary
What makes Testamentary Trusts different from
other Trusts is the favorable tax treatment they
receive under Income Tax Act (ITA) (at this time)
Pay tax at graduated levels
Testamentary Trust Wills &
The Henson Trust
Terms of Trust can provide for payment of
income/capital or both to Beneficiaries
Interest of Beneficiaries can be fixed in the Will
or
Discretion to allocate the income and/or capital
among the Beneficiary(ies) can be left to the
Trustee
Testamentary Trust Wills &
The Henson Trust
Beneficiaries of Trust have interest in Trust
Property
Trustee is legal owner of property
Trustee has authority to control the management
of the assets
Trustee has absolute power over the assets with
discretion to exercise power based on Settlors
wishes/intentions
Taxation of Testamentary
Trust
Trust treated as separate tax payer under ITA
Trust files Income Tax Returns to report income,
gains & distributions to Beneficiaries each year
Can have a non-calendar year
Trust receives deduction from income & gains in a
year for amounts paid to Beneficiaries in that year
Taxation of Testamentary
Trust
Living Trusts “Intervivos” pay tax @ highest
Marginal Tax Rate (MTR)
Testamentary Trusts pay tax at a graduated level
Ontario combined Federal/Provincial 2013
First
Over
Over
Over
Over
Over
Over
Over
Over
$39723 $39723 $43561 $69963 $79448 $82422 $87123 $135054 $509000
Source: http://www.taxtips.ca/taxrates/on.htm
$43561
$69963
$79448
$82422
$87123
$135054
$509000
20.05%
24.15%
31.15%
32.98%
35.39%
39.41%
43.41%
46.41%
49.53%
Taxation of Testamentary
Trust
Tax payable in province of residence of Trust
or where majority of Trustees reside
Incomes maintains its character (interest,
dividends, capital gains) when paid out to
Beneficiaries
Taxation of Testamentary
Trust
Access to graduated rates, more beneficial to retain
income & gains and have Trust pay tax versus
Beneficiary (at this time)
Trustee can elect to have income & gains taxed in
Trust even if paid or payable to Beneficiary
Portfolio of Investments of $750,000 @ 8% per
year or $60,000 in income saves $8,500 in taxes
each year
Why consider a Testamentary
Trust?
When a spouse has enough assets in his/her name to
permit other spouse assets to be held in trust to save
tax
Children/grandchildren have enough assets who
want to save tax
Protect assets widow/widower’s new suitor or
children spouse’s on marital breakdown
Protect spendthrift or disabled child/children
Ontario Disability Support Program
(ODSP)
Operated by Ontario Ministry of Community & Social Services
Designed to meet unique needs of people with disabilities who are in
financial need or who want & are able to work and need support
ODSP provides income support to help pay for living expenses (like
food & housing)
Benefits available:
Drug/dental coverage, vision care, hearing aids, diabetic supplies
Help with transportation costs to medical appointments
Help with work related expenses, child care costs & items needed for
work
If qualify → May also receive special diet allowance to offset costs of
casein, gluten, soy or sugar free diet
Ontario Disability Support Program
(ODSP)
To Qualify:
● 18 yrs of age or older-payable to 65 (if needed) then
CPP, OAS & GIS takes over
● Ontario resident
● In financial need
● Have substantial physical or mental disability that:
●
●
●
is expected to last a year or more
makes it hard for you to care for yourself, take part in
community life or work
ODSP will look at:
●
●
Financial situation ( assets, income, housing costs, size of
family)
Disability status
Ontario Disability Support Program
(ODSP) Rate Chart-November 2012
Basic Needs Table
Number of Dependants Dependants Dependants Recipient
Recipient
Recipient
dependants over 18 13 -17 years 0-12 years (See Note 1 and Spouse and Spouse
other than a
years
below)
(See Note 2 (See Note 3
spouse
below)
below)
0
0
0
0
$596
$882
$1,189
0
0
1
739
882
1,189
1
0
1
0
757
900
1,207
1
0
0
951
1,063
1,370
0
0
2
739
882
1,189
0
1
1
757
900
1,207
0
2
0
775
918
1,225
2
1
0
1
951
1,063
1,370
1
1
0
969
1,081
1,388
2
0
0
1,133
1,264
1,571
For each additional dependant, add $202 if the dependant is 18 years of age or older,
or $18 if the dependant is 13-17 years of age, or $0 if the dependant is 0-12 years of
age.
Source:
http://www.mcss.gov.on.ca/en/mcss/programs/social/directives/directives/ODSPDirectives/income_support/6_1_ODSP_I
SDirectives.aspx
ODSP & Inheritances
Family members if left an inheritance who are receiving
ODSP benefits will not be eligible for ODSP benefits
ODSP considers inheritance as a gift
Exemptions:
- up to $6,000 of total value of all gifts is exempt from
income (in any 12 month period without affecting ODSP
Income Support)
- $6,000 limit does not always count as income-when
used to pay for disability related items or services
- ODSP must approve item or service in advance to be
exempt
Source: http://www.mcss.gov.on.ca/en/mcss/programs/social/odsp/income_support/odsp_inherit.aspx
ODSP & Inheritances…
Example
Inherit $ in August ODSP will consider it
when calculating income support for August
If $ left over in next month- (Sept.) ODSP
will treat it as an asset in that month & asset
rules will apply that can affect eligibility for
income support
ODSP & Inheritances…
Inheritances up to $100,000 will not count as an
asset if it is placed in a Trust
Trust must be setup according to ODSP rules or
ODSP benefits could be affected
If inheritance more than $100,000 can still continue
benefits if placed within Discretionary Henson Trust
Setup through Will & gives Trustee power to decide
when to pay & how much money to pay Beneficiary
of the Trust
ODSP & Henson Trust
History of Henson Trusts
Real solution to inequity is Henson Trust
Available in Ontario since 1989
Henson trust places estate assets in the care &
control of a trustee to be administered for the benefit
of a Beneficiary(s)
Inheritances placed in a properly prepared absolute
discretionary trust (Henson Trust) are not the asset
of the child & will not affect provincial benefits
“Discretionary Trust”, “Henson Trust” & “Absolute
Discretionary trust” often used interchangeably
Motivation for Parents &
Guardians to set up a
Henson Trust
Special beneficiaries often benefit from guidance
in handling large sums of money or significant
assets
Either temporarily or on L.T. basis
Some beneficiaries are unable or unwilling to
seek guidance
May at some point be left without care unless
special provisions put in place
Henson Trusts
Must be created
during a parent’s or
guardian’s lifetime
(Intervivos)
and
To the terms of a
parent’s or guardian’s
will (testamentary)
These Trusts are invaluable in planning for child’s care
when Parent/Guardian no longer there
Benefits of Henson Trust
No lifetime limit to the exempt amount of
assets that can be held in a Henson Trust
In contrast- there is $100,000 lifetime limit
to a non Henson Trust, (any Trust where
the Trustee does not have absolute
discretion)
The Bottom Line
Henson trusts, ODSP, Benefits &
Tax Credits are special
arrangements necessary to
properly ensure that Loved Ones
are given the extra care they
deserve & that inheritances will
not be wasted
Options for Funding of Henson
Trust
Savings: The establishment of a regular savings program may be able to
provide adequate funds to Henson Trust
Parent’s Estate: Provided that the parent’s estate is sufficiently large, it
could provide for their own needs in their elder years, as well as having
enough left over to fund the trust
Family members: siblings, aunts and uncle’s, grandparents could be
willing and able to provide money to fund the trust
Life insurance: For the average family, life insurance may be the only way
that they can leave a large sum to the trust by making small monthly
payments. It is also possibly the only way of funding a trust that is
guaranteed. The other resources mentioned above may not always be
available but a paid-up life insurance policy can guarantee future funds
Registered Disability Savings
Plan (RDSP)
Savings plan intended to help parents &
others save for long term financial security
of person who is eligible for DTC
Contributions non tax deductible
Made until end of the year that Beneficiary
turns 59 years
RDSP…
Withdrawals of contributions are not
included as income for the Beneficiary
However, Canada Disability Savings Grant,
Canada Disability Savings Bond &
investment income earned in the plan are
included in Beneficiary’s income for tax
purposes when paid out of RDSP
RDSP…
Who can
become a
Beneficiary?
One must be:
Eligible for Disability
amount
Valid SIN
Resident of Canada @
time plan is entered
into
Under age 60
RDSP…
Who can
set up an
RDSP?
Legal parent of Beneficiary
Guardian, tutor or curator of the
Beneficiary
Individual who is legally
authorized to act on behalf of
Beneficiary
Public department, agency,
institution that is legally authorized
to act on behalf of Beneficiary
RDSP…
When plan is opened by a Beneficiary’s
legal parent’s, the legal parents may
continue as holder(s) of the plan after
Beneficiary reaches age of majority
When Beneficiary becomes an adult, he/she
may be added as joint holder
RDSP…
In all other cases, the Beneficiary is the only one
who can be a plan holder once they have reached
age of majority & are contractually competent
If a plan is opened by somebody other than the
Beneficiary, or Beneficiary’s legal parents, that
person or body must be removed as a holder of the
plan when Beneficiary reaches age of majority
RDSP…
An individual who is eligible to be
Beneficiary of an RDSP, may have reached
age of majority but may not be competent to
enter into a contract
If so: qualified person may open RDSP for
individual and become holder
Qualified Person are: -guardian, tutor, curator of Beneficiary, or person legally authorized to
act for Beneficiary
-public department, agency, institution that is legally authorized to act for beneficiary
Tutor or Curator: legally appointed individual either by will or by POA
RDSP…
Holder who is not Beneficiary of plan does
not have to be resident of Canada but must
have valid SIN or BIN (business
identification number) in order to establish
plan
How Do You Establish an
RDSP?
Person who is qualified to be a holder of the plan
must contact a participating financial institution
that offers RDSP’s (can invest in GIC’s, mutual
funds, savings deposits etc.)
Note: Beneficiary can have only one RDSP at
any given time, although this plan may have
several plan holders throughout it’s existence
Plan holder is the person who establishes the
RDSP & makes contributions on behalf of the
Beneficiary
RDSP Limits
No annual limit
Lifetime limit of $200,000
Canada Disability Savings
Grants
Government will pay matching grants of 300%,
200% or 100%, depending on family income &
amount contributed
RDSP can receive maximum of $3,500 in
matching grants, in a year
Maximum grant of $70,000 in Beneficiary’s lifetime
Source: http://www.clwindsor.org/resources/financial-matters/rdsp
Canada Disability Savings
Grants…
Grant can be paid to an RDSP on contributions made to
Beneficiary’s RDSP by Dec 31st of yr Beneficiary turns
49 yrs old
When annual net family income is less than $85414 the
grant will contribute:
- $3 for every $1 contributed on first $500
- $2 for every $1 contributed on next $1,000
(a $1,500 deposit will attract maximum grant of $3,500)
When annual net family income is over $85414 the
grant will contribute $1 for every $1 contributed up to
$1,000
Source: http://www.clwindsor.org/resources/financial-matters/rdsp
Canada Disability Savings Bond
Government will pay income tested bonds of up to $1,000 a
year to low income Canadians with disabilities regardless of
amount contributed
Lifetime bond limit is $20,000
Bond can be paid to RDSP until year in which Beneficiary
turns 49
When annual net family income is $24863 or less the
government will provide $1,000 per year without any
contributions, between $24863 and $42707, bond is prorated,
over $42707, no bond is paid
Bond & grant must stay in plan for 10 years otherwise must be
repaid
Source: http://www.clwindsor.org/resources/financial-matters/rdsp
Payments Made From RDSP
Payments to Beneficiary
Only certain
payments can
be made from
an RDSP
referred to as Lifetime
Disability Assistance
Payments (LDAP), or
Disability Assistance
Payments (DAP)
Payments to Beneficiary’s
estate follow death of
Beneficiary
Repayment of grants &
bonds to the government
Lifetime Disability Assistance
Payments (LDAP)
Once started
must be paid at
least annually
until either the
plan is terminated
or Beneficiary has
died
Begin by end of
year in which
Beneficiary turns
60
Subject to annual
maximum
withdrawals limit
based on
Beneficiaries' life
expectancy & fair
market value of
plan
Disability Assistance
Payments (DAP)
Beneficiary can request
withdrawal from RDSP
between ages 27-59 years
DAP is considered
“financial hardship”
payment
Maximum withdrawal based
on formula
Then
Beneficiary of
plan will be
entitled to request
& receive DAP
from the plan
RDSP Payments & Income Tax
CDS grant, bond & investment income are
included in Beneficiary Income for tax
purposes when paid out of the RDSP
RDSP issuers report the taxable portion of
the payments from the plan in box 78 of T4A
slip
RDSP-What happens when
impairment no longer exists?
RDSP must close no later than the end of
calendar year following the first full calendar
year that the Beneficiary is no longer
considered mentally or physically impaired
Grant, Bond and Investment earnings are
taxable, contributions are tax free
Similar tax treatment occurs at death
RDSP & Provincial Disability
Benefits
BC, Alberta, Saskatchewan, Manitoba,
Ontario, Newfoundland, Labrador & Yukon
have all exempted the RDSP as an asset &
income when determining a person’s
eligibility for Provincial Disability Benefits
New for 2011, Past Grants
Eligible to claim past unclaimed grants for
preceding 10 years (2008 inception date)
To be eligible, must still qualify for DTC and be
appropriate age in each preceding year
Past grants paid to annual max $10500
Unused past grants carry forward future years
New 2011 Past Bonds
Eligible to claim past unclaimed bonds for
preceding 10 years (2008 inception date)
To be eligible, must still qualify for DTC and
be appropriate age in each preceding year
Depends on contribution amount,
beneficiary/family net income
Past bonds paid to annual max $11000
Unused past bonds carry forward future years
Thank You!
For more information / free consultation
705 522 1422/1 800 837 1670
Email: [email protected]
This presentation was prepared by David Yurich, who is a registered Financial Advisor with Dundee
Private Investors Inc., a DundeeWealth Inc. Company. This is not an official publication of Dundee
Private Investors Inc. The views (including any recommendations) expressed in this presentation are
those of the author alone, and they have not been approved by, and are not necessarily those of, Dundee
Private Investors Inc.