When a family has a child with a disability, the need for a financial plan rises exponentially.
Trying to determine what kind of financial support your child will need as an adult is hard to predict, and figuring out all the parts of a plan can feel overwhelming.
Ron Malis, a financial adviser with Reegan Financial in Mississauga who works closely with the disabled community, says the key is for parents to start early and use all of the tools available to them.
For families with young children, time is powerful when it comes to saving, especially when they use a registered disability savings plan (RDSP), which has generous government contributions and a long life span.
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The RDSP is designed to give the beneficiary money to use later in life. Similar to a registered education savings plan (RESP), the federal government helps out in the form of grants and bonds – payments made into the account based on contributions and income levels. Grants and bonds for RDSPs can be received until age 49, so there’s lots of time for the account to grow.
Let’s say you open an RDSP when your child is five and contribute $1,000 a year until age 49 and receive a matching annual grant of $1,000 (or up to $3,500 a year for low-income families.) If this money is invested and earns 6 per cent a year, by the time the beneficiary is 60 and ready to start withdrawing the funds, the account would be worth about $780,000 – all with $49,000 of contributions. For lower-income families, the bonds and higher grants add even more.
Planning goes beyond the RDSP, though, and here is where things get complicated. Strategies like setting up a Henson Trust – which gives the child financial support without jeopardizing their government benefits – requires planning and legal advice. Choosing the right trustee to manage this trust is also crucial, as is figuring out how much life insurance parents should buy.
There are some good resources online, like Partners for Planning, a not-for-profit organization that offers webinars and has a free helpline. It’s a good place to learn the basics of the Disability Tax Credit, RDSPs, and other topics.
A common mistake people make is failing to understand how all of the parts of the disability plan fit together. Jason Flynn, a certified financial planner with ABZ Financial Planning, says a lack of cohesion can result in the plan falling apart.
As an example, Mr. Flynn points to a kind uncle who gifts a large sum of money to their disabled niece or nephew, which can derail access to government benefits.
Working with a financial planner will help with the more complex strategies. A financial planner can also help to co-ordinate the plan and make sure all the pieces fit together. The trick is to find a planner who has more than the base level of knowledge in this field.
Mr. Malis says the best way forward is to interview financial planners – you can find a directory on the Partners for Planning website. Ask questions about their experience, such as how many clients with disabilities they have worked with, what strategies they have recommended in the past, and what resources they can recommend.
Disability planning is a process that takes time. You don’t need to have all the pieces in place right away. Start with the basics and develop your plan from there.
Anita Bruinsma is a Toronto-based financial coach and a parent of two teenage boys. You can find her at Clarity Personal Finance.