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Financial planning for children with disabilities is an underused support

Jim Love is founder and chief executive officer of Legacy Private Trust and a founding partner of the law firm Love & Whalen.

Every year, Canadian financial planners inadvertently fail to secure an estimated $18-million in potential savings for some of their most financially vulnerable clients – parents of children with disabilities.

The Rick Hansen Foundation estimates that 4.4 million Canadians, among them 200,000 children, have a disability. But only half of them between the ages of 25 and 64 are employed, compared with 79 per cent of those without a disability. Close to 15 per cent of Canadians with disabilities also live below the poverty line.

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This inability to live independently means it's critical to ensure that families have the right financial support in place in order to manage immediate health-care costs and cover expenses over the child's lifetime.

The good news is that there are a number of government programs and estate-planning tools in place to help families ensure their children's financial security. But these programs can be difficult to navigate and are severely underused. It's incumbent on financial planners to fully understand the complexities of these programs and provide proper counsel to Canadian families to ensure this vulnerable population of our society is supported.

Perhaps the most underused of these programs is the Registered Disability Savings Plan (RDSP), which allows parents or relatives to build wealth to manage future expenses. Money saved in an RDSP grows tax-free and is eligible for government benefits, such as the Canada Disability Grant and the Canada Disability Savings Bond. These grants and bonds can add up to as much as $90,000 for an individual over the lifetime of the RDSP.

It's a sizable amount to cover a child's future expenses. But a 2014 report of the standing committee on banking, trade and commerce revealed that only about 15 per cent of eligible Canadians take part in the RDSP program – in other words, almost half a million eligible Canadians are losing out. In 2006, I was chair of the Expert Panel on Financial Security for Children with Severe Disabilities that recommended the federal government establish the RDSP program. We believed that we could make a difference for families, so it pains me to see that RDSP usage isn't higher.

Trusts are another useful estate-planning tool. Many families set up Henson trusts, which allow beneficiaries to receive a gift worth any amount while also preserving the right to collect provincial or territorial disability benefits. However, financial gifts made outside a Henson trust can result in a clawback on disentitlement to government benefits. For example, the general rule in Ontario is that if you have more than $5,000 in financial assets (including assets held in trust, if the trust is not a fully discretionary Henson trust) or receive more than $6,000 in a year, you are disqualified from receiving Ontario Disability Security Program (ODSP) benefits. When disqualified, you lose not only the shelter allowance and basic living allowance, but also the right to often expensive and crucial free prescription drugs.

The risk in not fully understanding the complexities of these programs is that poor planning can result in disqualification from provincial disability programs, such as the ODSP, which provides financial assistance and support in helping Canadians with disabilities find and keep a job.

There is no doubt that when there's a disability in a family, financial planning becomes much more complicated. Given the gap between the programs that exist to ensure financial support for special-needs children and the families that are taking advantage of them, it's clear that more needs to be done.

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At the heart of the solution are experts who can educate clients about the options and make sure they have the right plan in place to secure a prosperous future for their disabled children.

Everyone deserves the right to financial security, particularly families with special-needs children. It's a group we cannot afford to fail.

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