Special Needs Planning Presented and created by: David Yurich, B.Comm., CFP ®, RFP, CLU Director...
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Transcript of Special Needs Planning Presented and created by: David Yurich, B.Comm., CFP ®, RFP, CLU Director...
Special Needs Planning
Presented and created by:
David Yurich, B.Comm., CFP®, RFP, CLUDirector 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
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
Special Needs PlanningGoals 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”Medical Expense”
• Don’t qualify for DTC or CGTC, then claim all Don’t qualify for DTC or CGTC, then claim all associated medical expensesassociated medical expenses
• Claim medical expenses for yourself, spouse or Claim medical expenses for yourself, spouse or common law spouse partner & children born common law spouse partner & children born 1994 or later1994 or later
• List of “Eligible Expenses” in kitList 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
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
Testamentary Trust Wills & The Henson Trust
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
Living Trusts “Intervivos” pay tax @ highest Marginal Tax Rate (MTR)
Testamentary Trusts pay tax at a graduated level Ontario combined Federal/Provincial 2013
First $39723 - 20.05% Over $39723 - $43561 24.15%
Over $43561 - $69963 31.15%Over $69963 - $79448 32.98%Over $79448 - $82422 35.39%Over $82422 - $87123 39.41%Over $87123 - $135054 43.41%Over $135054 - $509000 46.41%
Over $509000 49.53%Source: http://www.taxtips.ca/taxrates/on.htm
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
Taxation of Testamentary Trust
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
Source: http://www.mcss.gov.on.ca/en/mcss/programs/social/directives/directives/ODSPDirectives/income_support/6_1_ODSP_ISDirectives.aspx
Basic Needs TableNumber of
dependants other than a
spouse
Dependants over 18 years
Dependants 13 -17 years
Dependants 0-12 years
Recipient (See Note 1
below)
Recipient and Spouse (See Note 2
below)
Recipient and Spouse (See Note 3
below)0 0 0 0 $596 $882 $1,189
10 0 1 739 882 1,1890 1 0 757 900 1,2071 0 0 951 1,063 1,370
2
0 0 2 739 882 1,1890 1 1 757 900 1,2070 2 0 775 918 1,2251 0 1 951 1,063 1,3701 1 0 969 1,081 1,3882 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.
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
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 & Inheritances…
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 deductibleMade 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 limitLifetime 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
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 Grants…
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
Canada Disability Savings Bond
Payments Made From RDSP
Only certain payments can be made from
an RDSP
Payments to Beneficiary 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.