Planning for The Financial Care of Disabled Children
August 20, 2020
For many people, the excitement of having a child can also come with worry about the enormous responsibilities associated with parenthood. For parents of children who were born with disabilities, those fears may be compounded as parents prepare to plan for their child’s long-term care needs, especially if the child outlives the parents. One of the best ways for parents to plan for the financial and health care of their disabled children is through the use of a trust. Coupled with benefits already in place, careful planning can go a long way to ensure parents their child will be cared for even after they reach adulthood.
The AISH Program
Some assistance for people living with disabilities is available through The Assured Income for Severely Handicapped (AISH) program. In 2018, the Alberta government removed restrictions that limited the availability of AISH funds if a potential recipient had other sources of income, such as trusts, in place. AISH is primarily used to cover living and some medical expenses, and more information about the program, including details around eligibility, can be found here.
Registered Disability Savings Plan
RDSPs, formally known as Registered Disability Savings Plans, are another savings tool with government support, though unlike AISH, this plan is offered by the federal government.
RDSPs are designed as long-term savings plans. Unlike RRSPs, contributions to RDSPs are not tax-deductible. Instead, the money is not taxed when withdrawn (however, income generated through interest is taxed). The federal government will match individual contributions to an RDSP up to $3,500 per year with a maximum lifetime government contribution of $70,000. While annual contributions to an RDSP are not limited, there is a lifetime limit of $200,000.
To be eligible for an RDSP, the beneficiary must meet the following criteria:
- Be under 60 years of age
- Be a Canadian resident
- Be eligible for the Disability Tax Credit
- Have a Social Insurance Number
More information about RDSPs, including how to apply, can be found here.
Henson Trusts & Non-Discretionary Trusts
For those looking for additional financial security for their disabled child, the use of discretionary trusts, also known as “Henson trusts” are a good way to save additional money. A Henson trust is set up so that the beneficiary, in this case, the child, receives financial support from the trust, but the funds are administered and managed by a third-party trustee. Under a Henson trust, the beneficiary has no legal claim to the property or funds in the trust. These trusts can be established under the terms of a Will, or when a parent (or whoever is establishing the trust) is still alive. In addition to holding money, Henson trusts can also hold assets, such as a home.
In addition to Henson trusts, non-discretionary trusts are also available. The key difference between the two trusts is that in the later, the trustee has limited control over the distribution of income and property from the trust to the beneficiary. In cases such as this, the terms of the trust itself establish how much and how often money or property will be provided to the beneficiary.
There are important considerations to take into account when setting up a trust or otherwise planning for the long-term care of loved ones with disabilities. Great care must be taken to make sure the maximum government benefits are realized while also ensuring personal contributions don’t violate any rules around maximum contributions or other regulations.
At HMC Lawyers, our family law team works with our clients to find positive solutions for a variety of family law matters. To speak to one of our experienced lawyers, please call us at 1-800-480-3534, or reach us online to schedule an appointment.