Learning that your child has a disability may feel overwhelming. Raising a child with a disability can bring both joys and challenges, including unique financial considerations. Planning ahead helps secure your child’s long-term wellbeing and provides peace of mind. Here are some steps parents can take to ensure that their child has the best financial safety net possible.
1. Apply for the Disability Tax Credit (DTC)
The Disability Tax Credit is a non-refundable tax credit designed to reduce income tax for individuals with a severe and prolonged impairment or their supporting family members.
- Why it matters: Approval for the DTC often unlocks other federal and provincial programs, including the Registered Disability Savings Plan (RDSP).
- How to apply: A medical practitioner must complete Form T2201, which you submit to the Canada Revenue Agency (CRA). Once approved, you may also claim the supplement for children under 18.
2. Open a Registered Disability Savings Plan (RDSP)
A Registered Disability Savings Plan (RDSP) is a powerful long-term savings vehicle for people eligible for the DTC.
- Government incentives: The federal government offers generous matching grants (Canada Disability Savings Grant) and bonds (Canada Disability Savings Bond) that can significantly grow savings, especially if you start early.
- Flexibility: Contributions are not tax-deductible, but investment growth and government contributions grow tax-deferred until withdrawal. Funds withdrawn are taxed as income by the beneficiary in the year of withdrawal.
3. Consider a Henson Trust
A Henson Trust is a special type of discretionary trust designed to protect assets for a person with a disability.
- Purpose: It allows you to leave an inheritance without affecting your child’s eligibility for means-tested benefits such as the Ontario Disability Support Program (ODSP).
- How it works: The trustee has full discretion over when and how funds within a Henson Trust are distributed, so the assets are not considered the beneficiary’s own.
- Next steps: Work with a lawyer experienced in disability law and estate planning to draft the trust as part of your will.
4. Understand Eligibility for the Ontario Disability Support Program (ODSP)
ODSP provides financial and employment supports to Ontario residents with disabilities.
- Financial criteria: Applicants must be over 18 years of age and meet income and asset limits. Some assets—such as funds held in a properly structured Henson trust or an RDSP—are exempt.
- Disability criteria: A health professional must confirm the disability is substantial and long-term.
- Benefits: ODSP offers monthly income support for basic living expenses and may also provide health-related benefits.
5. Build a Comprehensive Plan
In addition to these programs, consider life insurance, a will, and powers of attorney for both you and your child. These documents ensure your child is cared for and your intentions are clear.
Financial planning for a child with a disability can feel overwhelming, but you do not have to do it alone. Meet with a member of our Wealth and Investment team to discuss how Kindred can help you create a secure future for your child.