Parents, Children and Some Financial Planning Considerations: Disabilities and Special Needs

August 14, 2024

Planning early for the costs that come along with supporting a child’s success through various stages of childhood to adulthood is an important focus for families. Financial planning for a family with a child with a disability can be more complex because it is likely to include a variety of additional caregiving issues and considerations. There could be costs associated with therapies, home and vehicle modifications, medical treatments and more. It is important for parents to know about the various government support options designed to help implement care strategies for children with disabilities and special needs.

Government Support and Income Tax Benefits

The various levels of government have programs that can assist with the care of a person with disabilities. This can include financial relief for special and customized equipment and income tax benefits. Many programs get implemented by the approval of the Disability Tax Credit (DTC). To apply for the DTC submit the form T2201 (Disability Tax Credit Certificate) to Canada Revenue Agency (CRA). Here are some programs to consider:

Disability Tax Credit (DTC) – a non-refundable tax credit that helps people with disabilities, or their supporting family member, reduce the amount of income tax they may have to pay.

Canada Caregiver Credit (CCC) – a non-refundable tax credit designed to help individuals who are depended on to care for an eligible person who has an impairment in physical or mental functions.

Child Disability Benefit (CDB) – a tax-free monthly payment made to families who care for a child under the age of 18 with a severe and prolonged impairment in physical or mental functions. This payment is automatic if the parent is eligible for the Canada child benefit (CCB) and the child qualifies for the DTC.

Assistance for Children with Severe Disabilities (ACSD) – a financial assistance program through the Ontario government available for eligible parents or guardians caring for a child with severe disabilities to help cover extra costs such as travel to doctor, hospital and other appointments related to the child’s disability, specialty shoes and clothes, and parental respite relief.

Ontario Disability Support Program (ODSP) – The Ontario Disability Support Program (ODSP) is offered by the government of Ontario for a person with a disability and has various areas of support, including:

1. Employment support designed to help people with disabilities find a job.
2. Providing health benefits including prescription drugs and vision care.
3. Income support designed to provide financial support to pay for living expenses.

To qualify for income support the disabled individual must be an Ontario resident, be 18 years old or older and have a severe physical or mental impairment that is continuous and lasting a minimum of one year. The amount received will depend on your specific situation.

An individual can earn up to $1,000 monthly of net income without affecting ODSP payments with 75% of earnings above this impacting ODSP support. Some common forms of income include employment income, Canada Pension Plan (CPP), Old Age Security (OAS), Workplace Safety and Insurance Board (WSIB) and spousal support. Examples of exempt income are child support, RDSP payments, certain federal and provincial tax benefits. Gifts and voluntary payments received cannot exceed $10,000 within a 12-month period before affecting your ODSP amount. The prescribed asset limit for a benefit unit is $40,000 for a single recipient and $50,000 for a couple.

Important exemptions to be aware of are the home you own and live in, a primary vehicle, Registered Education Savings Plan (RESP), RDSP savings and trust funds derived from an inheritance or life insurance or an asset necessary for the health or welfare of a benefit unit.

Registered Disability Savings Program (RDSP)

Saving for the long-term is important for individuals with disabilities to assist with their financial security. If a person qualifies for the Disability Tax Credit (DTC) and is under the age of 18, parents can open a RDSP and become the holder of the account with the child being the beneficiary. The RDSP holder makes contributions into the plan with the Government of Canada adding to the RDSP in two ways:

1. The Canada Disability Savings Grants (CDSG) which are calculated based on the contributions made and the family’s net income up to the annual amount.
2. The Canada Disability Savings Bond (CDSB) for low-income Canadians with disabilities. No contribution needs to be made.

Unused grant and bond entitlements can be carried forward for up to 10 years. Withdrawals can be made as a one-time lump sum or it may come time to convert the RDSP into an annual income stream with contributions amounts not being taxable and CDSG, CDSB and investment income being taxable income to the beneficiary.

Read more in our previous article:

What is a Registered Disability Savings Plan (RDSP)

Henson Trusts

A big concern many families face is the uncertainty of the financial well-being and care that their child with special needs will face once the parents have passed on. Henson Trusts are a way for families to preserve the inheritance of a disabled child while still protecting government support and financial benefits that the disabled person has been qualified to receive, specifically in Ontario, the ODSP. A Henson Trust is a legal document drawn up by a lawyer which is implemented upon the passing of the parents. The inheritance assets pass to the Henson Trust which removes legal title of the funds from the child to the trust. The trustee manages the money with complete discretion to provide income and if required lump sum payments to the beneficiary. There is no maximum value that can be held in a Henson Trust and no limit to the amount that can be paid out. If the distributions remain within the assigned income limits for the specific programs, government support and benefits will remain unaffected for the individual.

It can be challenging and complex for families to plan for long-term financial success and support immediate needs of their child who has a disability and special needs. Community support groups, a financial advisor, legal and tax experts can help navigate areas of concern, set-up a plan and implement solutions.

FirstOntario Credit Union in partnership with Aviso Wealth has an experienced team of advisors specializing in various areas of wealth management including retirement planning, investment management, estate and succession planning, individual financial risk management and more. These professionals are here to help you plan for the future and reach your financial goals. Visit FirstOntario.com/Investments or call 1-800-616-8878 ext. 1700 to connect with a FirstOntario advisor and start growing your wealth today – your way.

Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This should be considered as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds. The views expressed are those of the writer and not necessarily those of Aviso Wealth.