The challenges of retiring with a dependent child

Elizabeth Sakac and her husband Zlatko are having a retirement that’s quite different from their friends. Their son Paul, now 44, lives with them in a midtown Toronto house that they share with Zlatko’s sister.

“We live upstairs – it’s two bedrooms and two bathrooms,” says Ms. Sakac, 78. “We downsized to a much smaller house when we retired.”

Paul, a high school and college graduate, loves discussing politics and chatting over Zoom calls. He is also on the autism spectrum. Although high functioning, it’s challenging for him to live on his own and hold down a long-term job.

Paul receives $1,160 in Ontario Disability Support Program (ODSP) payments every month, part of which the family uses to pay for his food and accommodation. He also saves $1,500 a year in a Registered Disability Savings Plan (RDSP), to which the Canadian government contributes $1,000 annually as part of the Canada Disability Savings Bond. The family has also amassed other savings.

Ms. Sakac worries about Paul’s future once she and her husband pass away. He may require some form of assisted living, which is why she has set up a Henson Trust, which protects the assets of a person living with a disability and allows them to continue to collect ODSP.

“I really want him to get some independence and be happy,” Ms. Sakac says.

The Sakac family is part of a group of retirees who not only have to carefully plan their own retirements, but also focus on saving enough for their disabled adult children. In addition to their own RRSPs, they also need to set up special trusts, research government benefits and appoint reliable friends or acquaintances as trustees. And they need to map out a safety net for their children that may or may not include care. It’s a lot to handle in addition to the financial and health care challenges that can arise in the retirement years.

To begin with, there is the emotional impact of living in constant contact with a child that will always remain at home. Although Paul has moved out in the past, Ms. Sakac says he always ends up back at home where he feels loved and supported.

“We tried to rent a place for him for $1,000 a month, but he lived there for one night,” she says.

The couple also takes Paul on every vacation, ensuring that he isn’t left alone in Toronto. Although it means the Sakacs don’t have any time alone, she realizes her son needs her support.

“We have to be in the background,” she says.

Would-be retirees also need to do some financial planning – and sooner rather than later, says Geoffrey Zaldin, co-founder and CEO of Special Needs Financial in Toronto.

He often sees clients in their 40s and 50s panicking about their retirement arrangements and suggests families do a complete financial workup earlier to determine exactly what they – and their disabled child – will need.

He says that most people utilize RDSPs, but may not have thought of every eventuality. Factors to consider are the ability of the child to earn income, live independently and need care versus how much money would be needed by a sibling or siblings that are not disabled, for example.

“Some children might require a lot of programming or extra medical support that will be very expensive,” he says.

And every province is different when it comes to setting up disability benefits and trusts, Mr. Zaldin says.

In Ontario, he says, the best option is the Henson Trust.

“This trust protects the disabled individual from losing government assistance,” he says.

In a Henson Trust, the beneficiary doesn’t have any legal claim to money held in the trust, so they still retain eligibility for the ODSP. However, a trustee must be appointed to administer the trust, who makes all of the decisions for the disabled individual.

And that trustee needs to be well-versed in governmental rules and regulations as well as benefits that disabled people are entitled to in that province. They’ll also potentially be responsible for managing the funds in the RDSP, the care of the disabled individual and making decisions about their living situation.

“Ideally, there should be multiple trustees – two family members and one independent person,” Mr. Zaldin says. “Having more than one person in charge can prevent any mistakes.”

In Alberta, a testamentary full discretionary trust, much like a Henson Trust, is typically set up for disabled adult children. But in that province, Assured Income for the Severely Handicapped (AISH) – financial and health benefits for eligible Albertans with a permanent medical condition that prevents them from earning a living – is also granted.

With AISH, parents have to be careful with how much income their disabled child will have. While some income, such as RDSP and RRSP payments, is exempt and doesn’t affect the AISH monthly living allowance, other items are non-exempt and are subtracted dollar for dollar.

Plus, assets that are not exempt cannot be worth more than $100,000 collectively, warns Michael Klaray, a partner with Duncan Craig LLP in Edmonton and head of the Estate Solutions Group. These might include cash, tax-free savings accounts (TFSAs), registered retirement savings plans (RRSPs), a recreational home or a recreational vehicle.

“It’s a big thing for people to lose their AISH,” he says, because AISH also covers medical and dental benefits and helps fund supported living.

“You don’t want to lose access to free medication,” he cautions. “Look at what asset test or what income test there is for a child to receive benefits.”

Mr. Klaray also cautions retiring parents to not assume that government funding will be in place forever.

“You should be providing your children with what you anticipate they will need without banking on government funding,” he says.

He suggests designing a trust that will be flexible and be able to adjust if government assets are cut off, to prevent underfunding.

Though anxious, Ms. Sakac is cautiously optimistic that the plans she has put in place will ensure Paul is well looked after.

“The trust says he will have a roof over his head,” she says. “And we are teaching him to be self-reliant. I want the best for him.”

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