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The registered disability savings plan (RDSP) has been known for its complexities, but an updated provision to the plan, which has had a historically low uptake, should make it more attractive to families and give them more flexibility in managing these accounts.
The federal government introduced the RDSP in 2008 to encourage Canadians with disabilities and their families to save for the long term. When the RDSP was first launched, the beneficiary’s legal representative was the only person who could be the account holder if a beneficiary’s competency was in doubt.
That created challenges for families who wished to become legal representatives because they had to go to court and make a case for why they should be appointed.
To make it easier to open an RDSP for a beneficiary whose competency is in doubt, the federal government introduced the qualifying family member (QFM) provision in 2012. When it was introduced, it allowed a parent, spouse or common-law partner to become the RDSP account holder. This provision was introduced as a temporary measure to give the provinces and territories time to address how they deal with legal representation for a person who has a disability.
The QFM provision was set to expire on Dec. 31, but the federal government extended it to Dec. 31, 2026, in the 2023 federal budget in the hope that provinces and territories that have not addressed legal representation for a person who has a disability would do so before that deadline. The government also expanded the definition of the QFM to include siblings.
That’s a significant development because parents are often the account holders for an RDSP in which the beneficiary’s competency is in doubt – and there are many cases in which they would like to transfer that responsibility to one of their other adult children when they die.
Prior to the change in the QFM provision, the only way that could happen was if the sibling went to court and was appointed the legal representative of their sibling who has a disability, which is a time-consuming and costly process.
How to make a sibling an account holder
Now that the QFM provision includes siblings, planning for an RDSP beneficiary whose competency is in doubt is much more straightforward.
If a parent wishes, they can be co-holders with their adult child, the beneficiary’s sibling. They can also have the sibling as the sole account holder. If a parent would like to be removed as the account holder and have their child (the RDSP beneficiary’s sibling) added as the new account holder, this can now be done with ease.
The sibling would just need to complete a new application and if the beneficiary is eligible for a grant or bond, a new grant or bond application would also need to be completed.
It’s also necessary to include a letter of direction signed by the current account holder – the parent – asking that they be removed and the adult child be added as the account holder.
It’s important to note that not all siblings are considered eligible siblings under the expanded QFM provision. A full sibling and a half-sibling would qualify; however, a stepsibling, sister-in-law or brother-in-law would not.
For advisors with clients who have RDSPs in which an aging parent is the account holder, now would be an ideal time to reach out and see if they want to take advantage of this expanded QFM provision and review financial plans.
Jacqueline Power is assistant vice-president of tax and estate planning at Mackenzie Investments in Toronto.
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