19 December 2014

Registered Disability Savings Plan (RDSP)

There’s a good chance that you are related to, or know someone with a disability. There are 3.8 million Canadians or 13.7% of the Canadian population aged 15 or older that are reported to having some form of disability.

Canada has a good savings and benefit program in the form of government grants and bonds, but many people who qualify for the disability program are not aware that Canada has a Registered Disability Savings Plan (RDSP).

While we are all probably familiar with Registered Retirement Savings Plan (RRSP) and Registered Education Savings Plan (RESP), very few have heard of the RDSP.

The RDSP is a vehicle for tax-deferred growth and a “matched” savings plan for people with a severe and prolonged disability. For Canadians who qualify, the RDSP is a great way to achieve long-term financial security.

Who qualifies?

To qualify for the RDSP, the beneficiary of the program (the person with the disability) must meet four criteria. He or she must:

- be under the age of 60
- be a Canadian resident
- have a valid Social Insurance Number
- be eligible for the Disability Tax Credit (DTC)

The best way to find out if you or someone you know might be eligible for the Disability Tax Credit (DTC) is to see your doctor who can fill out a CRA form (T2201) to make that determination. If a person meets the other three criteria listed above but hasn't done the DTC paperwork, he or she can still open the RDSP while the DTC paperwork is in progress but if CRA denies the DTC application, the RDSP will have to be closed and any bond or grant received will have to be returned to the government.

The Bonds and Grants

Just like an RESP, there are bonds and grants available in an RDSP. As of 2013, here is what's available:

The Canada Disability Savings Bond

If the family income of the beneficiary is $25,356 or less, the government deposits $1,000 bond each year to the RDSP. The government will deposit the bond into the RDSP without the beneficiary having to contribute anything.

If the family income is between $25,356 and $43, 561, a prorated bond is available. CRA has a formula based on the age of the beneficiary to calculate the amount.

For families with income of more than $43, 561, no bond is available.

The Canada Disability Savings Grant

If the beneficiary's family income is $87,123 or less, the government will match 300 percent of the first $500 contributed to the RDSP up to $1,500 per year.

For the next $1,000 contributed to the plan, the government will match 200 percent up to $2,000 per year.

For example: If $1,500 is contributed to the RDSP and the beneficiary's family income is under the threshold of $87,123, the government will give a grant of $3,500.

     $  500 contribution x 300% = $1,500 grant
     $1,000 contribution x 200% = $2,000 grant
     Total                        $3,500 grant

If the beneficiary's family income is over $87,123, the government will match 100 percent of the first $1,000 contributed up to $1,000 per year.

Family income is based on the household income if the beneficiary is under 18 years of age. If the beneficiary is 18 or over, the family income is based on his or her income, and that of their spouse, if any.

Limitations of the RDSP

There are a few limitations and restrictions to know about with the RDSP. First, there are the contribution limits:

Maximum Disability Bond is $1,000 per year
Maximum lifetime Disability Bond that can be received is $20,000

Maximum Disability Grant is $3,500 per year
Maximum lifetime Disability Grant that can be received is $70,000

Maximum lifetime contribution limit is $200,000

There is no limit to the amount that can be contributed to the plan in a year.

If a person has qualified for the RDSP since its inception in 2008 but hasn't started one yet, it may be possible to 'catch up' on missed bonds and grants. If you're starting an RDSP and want to find out about how much you're eligible to catch up, call the government's RDSP hotline at 1-866-204-0357.

Unused Grant and Bond entitlements: “The carry-forward measure”

Unused Grant and Bond entitlements from the past 10 years (starting in 2008) can be claimed for existing RDSPs, or RDSPs opened in January 2011 or later.

To apply for unused Grant and Bond entitlements, the beneficiary must currently be eligible to receive the Grant and the Bond. Applications can be made until the end of the calendar year in which the beneficiary turns 49.

The amount of Grant and Bond eligibility depends on the beneficiary's family income in those years. The Grant amount received also depends on how much is contributed to one's RDSP. The matching rate will be the same as the one that would have applied if the contribution had been made in the year in which the Grant entitlement was earned. Matching rates will be paid on RDSP contributions using up any Grant entitlements at the highest available rate first, followed by any Grant entitlements at lower rates.

Grants and bonds will be paid on the unused entitlements up to an annual
maximum of:

• $10,500 for grants; and
• $11,000 for bonds

The maximum amount of Grant paid over the beneficiary's lifetime is $70,000.

The maximum amount of Bond paid over the beneficiary's lifetime is $20,000.


Here’s an example of how the carry forward measure works. Let’s assume the family income for the beneficiary is below $25,356. If you start an RDSP on 2014 (which is after January 2011), you can carry forward unused grants and bonds starting in 2008. You can deposit $3,500 and get all the maximum grants and bonds, here’s the breakdown:

2008 to 2014 is 7 years

$500 per year x 7 years = $3,500 contribution

You can get $1,500 (300%) of grants for every $500 you contribute

$1,500 grants x 7 years = $10,500 (annual maximum)

Plus $11,000 bonds (annual maximum)

     Contributions  $3,500

     Grant         $10,500 ($1,500 x 7 years) annual maximum
     Bonds         $11,000 annual maximum
     Total         $21,500

So by putting in $3,500 on the first year, the beneficiary can potentially get a total of $21,500 of grants and bonds.

On the 2nd year of the plan, you can put around $5,000 to get another $21,500 of grant and bonds. It will not be $3,500 because the way the grant works for the carry forward is they will use all the 300% match first. Since you’ve already used them up on the first year on the 2nd year it works this way.

First $500 gets $1,500, the balance of $4,500 ($5,000 - $500) gets a match of 200% or $9,000. The outcome is

     Contribution   $5,000

     Grant         $10,500 ($1,500 + $9,000) annual maximum
     Bonds         $11,000 annual maximum
     Total         $21,500

This is just an example of someone whose family income is below $25,356. The person’s individual grant and bond entitlement will be different depending on their family income as they are calculated based on their income in each year going back to 2008. So if at any time from 2008 to present, the beneficiary’s income goes over the minimum, then the bond entitlement is adjusted accordingly. The grant doesn’t get adjusted until the family income goes over $87,123.

Time Limitations

Registered Disability Savings Bond and Grants can only be received up to the end of the year the beneficiary of the plan turns age 49. Any contributions after that will not receive any grant or bonds.

The last day to contribute to the RDSP is the end of the year the beneficiary turns 59.

Like the Registered Retirement Income Fund (RRIF) which must be withdrawn no later than age 71, the RDSP must also be withdrawn at a certain age. The beneficiary of the RDSP must begin collecting from the plan at age 60.

The biggest restriction on the RDSP is the penalty for withdrawing the money early. A beneficiary can request a payment from the RDSP at any time in the form of a Disability Assistance Payment (DAP) but if the beneficiary withdraws money from the plan prior to age 60, there is a claw back of three times the amount of the withdrawal or to the maximum Assistance Holdback Amount (AHA). The AHA is the total amount of Disability Bonds or Grants received in the 10 years preceding the date of the DAP withdrawal.

When it's time to take out the money


Contributions are not tax deductible like an RRSP. It’s more like a TFSA where money invested into the RDSP is after tax dollars.

At age 60, when it's time to start receiving income from the RDSP, the money will be taxed in the hands of the beneficiary, who presumably will be in a low tax bracket. The payments will be received in the form of Lifetime Disability Assistance Payments (LDAP) and will consist of three parts: contribution, bonds & grants, and growth.

When the beneficiary withdraws from the RDSP, contributions or money invested are not taxable or added to the income of the beneficiary.

Only the Canada Disability Savings Grant, Canada Disability Savings Bond and the investment earnings portion of the LDAP in the plan are included in the beneficiary's income for tax purposes when they are withdrawn out of the RDSP.

Each withdrawal is a blend of taxable and non-taxable amounts.


In summary, you can contribute to an RDSP until Dec 31st of the year the beneficiary turns 59.

The beneficiary can only open an RDSP if they qualify for the Disability Tax Credit (DTC).

You will only get the grant and bonds until Dec 31st of the year the beneficiary turns 49.

Contributions made are not taxable

Grant, bonds and investment growth is taxable to the beneficiary.

24 July 2014

Who Turns Off your Facebook When You Die?

Let's face it, our digital lives are completely intertwined with real lives. Everybody is connected digitally in one way or the other. We all have one or more of these services like e-mail, Facebook, Instagram, Twitter, LinkedIn, etc. While we all manage them personally, what happens when we pass away? Who manages them to inform your friends and family that you are no longer around and how do you want your online life to be managed so that it will be delete or deactivated so that no one can hack or impersonate you?

As far as I know, there is no law in Canada allowing for the passing of your digital assets to your estate or beneficiary. Your digital assets is not the same as your physical and financial assets which can be passed on. This leaves a lot of problem for the survivors since online companies usually do not just allow anyone to get access to another person's account even if that person is deceased without going through some rigorous processes to prove death and that you are the person that has the authority to change or delete the account.

Currently in the U.S., there is a law that has been interpreted by the Wall Street Journal this way, "In 1986, Congress passed a law forbidding consumer electronic-communications companies from disclosing content without its owner's consent or a government order like a police investigation. Although that law predates the rise of the commercial Internet, courts and companies have largely interpreted it to mean that the families can't force companies to let them access the deceased's data or their accounts."

In short, when you die, your family cannot legally obtain access to your digital accounts. And most of these online companies are located in the U.S. and will follow U.S. law.

So how will you manage your digital life? The best way to do this is to create a document listing all your online accounts, username and password and keep it along with your Will. I have a template of this document and most of my clients have a copy of this template. I call it the "Last and Final Letter" which is a guide (not a Will) to the survivors on what and how you want things manage. The Last and Final Letter includes information about your bank accounts including online banking numbers and passwords, online accounts like Facebook, LinkedIn, e-mail accounts, etc.

If you are the executor, the process of deleting and deactivating account should be done slowly and in some cases, through a certain sequence. You may want to post an announcement first that person has passed away on their Facebook and LinkedIn account and that any communication coming from that deceased going forward should be ignored or reported (in case it was hacked). After a few weeks, start deleting them one by one starting with Social Network accounts like Facebook and LinkedIn and so on. The last thing to be deleted should be e-mail as these social network accounts usually connect to e-mail to verify deletion of the account.

E-mail should be kept longer and monitored so subscription can be unsubscribed and any correspondence replied to inform that the person is deceased. After which, the e-mail can be deleted as well.

Here's an article I found that provides a small guide about how an executor should handle digital assets.

Canadian law will continue to evolve and may address this issue in the future. But for now, this method should suffice as long as it is done properly and respecting the privacy of the deceased.

10 April 2014

The Value of a Comprehensive Home Insurance Coverage

A funny thing happened to one of our clients the other day. She lives in a condo with two kids under 3 years old. One day, she started smelling something bad coming out of her second bathroom so she called her property manager to complain and the property manager told her to call a plumber.

The next day, a plumber came in and told her that since she doesn't use that shower that she should just run the shower for a while and the smell should go away.

She did as the plumber suggested but the smell didn't go away. In fact, it just got worst each day. She called the plumber again and the plumber said he couldn't figure out what was wrong. So he decided to remove the wall to find out if there was a broken sewer line which could be the source of the smell. Once the wall was taken out, the smell got even worst, in fact, 10 times as worst. She described it as like hitting a wall of stink and it was unbearable.

The plumber found nothing wrong and said the smell must be coming from the apartment below. So she called her property manager and told him that they have to go into that apartment below and find out the source of the smell.

The property manager called the owners, and it turns out that the owners don't live there but their brother did and promised to go there later in the day to check it out.

Well, the owners didn't actually check out the apartment until the next day and when they did, guess what they found? It turns out the brother died while in the tub, maybe from a heart attack. The brother has been dead for more than three weeks and nobody even bothered to check in on the brother the whole time.

So what is the point of this story other than sharing a morbid story.

Well, our client could't stay in her apartment because the smell was unbearable, especially with two kids under 3 years old. She was talking to her neighbor and who was wondering what to do. Our client told her that she will be checking with her insurance company if the company will pay for the cleanup and for her to move out. She asked her neighbor if she had home insurance said that she doesn't because she's just renting and didn't see the need for having insurance and asked if insurance would have paid for it.

Fortunately, our client has a comprehensive condominium insurance policy which is an All Risk policy. This means that all perils are covered unless specifically excluded in the policy. This policy also includes coverage for Additional Living Expense and this coverage will pay for her food and lodging until her place has been cleaned up.

Additionally, her insurance will pay to move her stuff out of her apartment to be cleaned and put in storage then return them once the apartment has been sanitized. The cost for the removal, cleanup and return of her personal property alone is $5,000.

You wouldn't normally think that something like a bad smell would be covered by your home insurance. But under a Comprehensive policy, it does, especially in this situation. That's why it pays to have a Comprehensive Insurance policy because it covers unusual situations like these.