By: Nicole Garton, President of Heritage Trust

Table of Contents:

• 1. What is a Disability?
• 2. Estate Planning Considerations for Disabled Beneficiaries
• 3. Government Assistance Available for Disabled People
• A. Federal Disability Assistance
• i) The Disability Tax Credit (DTC)/T2201 Certificate
• ii) CPP Disability Benefits
• B. BC Disability Assistance
• i) BC Disability Assistance Benefits
• ii) Qualifications to be a Person With a Disability (PWD)
• iii) Asset Test
• iv) Income Test
• v) Disability Related Costs
• vi) Temporary Exemption of Assets
• vii) Application Process to Obtain PWD Status
• 4. Estate Planning Options for Disabled Beneficiaries
• A. Trusts Generally
• B. Disability Assistance and Trusts
• i) Non-Discretionary Trusts
• ii) Discretionary Trusts
• C. Drafting Trusts
• i) Issues to Consider
• ii) Permitted Expenditures From a Trust: Disability Related Costs
• iii) Choosing a Trustee: Factors to consider
• D. Tax Considerations for Trusts
• i) Preferred Beneficiary Election
• ii) 21 Year Disposition Rule
• iii) T3 Trust Return and New Reporting Rules
• iv) Qualified Disability Trust (QDT)
• E. Registered Disability Savings Plan (RDSP)
• i) What is the RDSP
• ii) RDSP Eligibility
• iii) RDSP Holder Options & Contractual Competency
• iv) RDSP Withdrawal Considerations
• v) RDSP - LDAPs vs DAPs
• vi) RDSP 10 Year/Proportional Repayment Rule
• vii) RDSP - Shortened Life Expectancy
• viii) RDSP - DTC Loss Withdrawals
• ix) RDSP Taxation
• x) RDSP Closure
• xi) What happens when a beneficiary dies?
• F. RRSP/RRIF Rollovers
• G. RRSP/RRIF/RESP Transfer to RDSP
• H. RRSP/RRIF Transfer to Lifetime Benefit Trust (LBT)
• I. Life Insurance
• 5. Assisting an Adult Disabled Person with Decision Making
• A. Powers of Attorney
• B. Representation Agreements
• i) Standard Representation Agreement (section 7)
• ii) Non-standard Representation Agreement (Section 9)
• C. Nomination of Committee
• D. Committeeship Proceedings
• E. Wills
• 6. Disability Resources
• A. Organizations
• B. Informational Websites
• C. Booklets
• D. Application Forms
• E. Find a Lawyer
• F. Find an Accountant
• G. Find a Professional Trustee
• 7. Disability Precedents

1. What is a Disability?

The term “disability” refers not to a single state but rather to a wide spectrum of conditions. These include physical limitations, such as mobility, visual and hearing impairment. Various invisible disabilities, including cognitive limitations and mood disorders, are less readily identifiable but can be equally difficult.

Many individuals are born with a disability while others acquire a disability at some point in their lifetime due to an illness, accident or injury at work, play or home. Still others face functional limitations involving hearing, sight, cognitive and mobility impairment as a result of aging.

The United Nations Convention on the Rights of Persons with Disabilities provides as follows:

The Accessible Canada Act provides as follows:

2. Estate Planning Considerations for Disabled Beneficiaries

Many parents and grandparents fear for the future financial well-being of their disabled child or grandchild after they are gone. There are many practical, tax, and disability benefit considerations that must be contemplated when designing an estate plan that includes a disabled beneficiary. Proper planning will ensure that persons with disabilities remain eligible to receive provincial disability assistance while at the same time providing financial supports to assist with incapacity issues and also address any potential risks of susceptibility and undue influence.

There are various advance planning options available, such as:

• Direct ownership of assets by a disabled person (for example, purchase a principal residence or vehicle for the disabled beneficiary?)
• Trusts that benefit a disabled person;
• Registered Disability Savings Plans (“RDSP”)
• RRSP/RRIF Rollovers;
• life insurance; and
• a combination of the above.

What options you choose will depend on:

3. Government Assistance Available for Disabled People

A. Federal Disability Assistance

Current federal disability benefits:

Every dollar counts - Benefits, credits and programs

Even things we don’t love can have benefits. Like doing your taxes.

www.canada.ca

Canada Revenue Agency Disability-Related Information 2023

i) The Disability Tax Credit (DTC)/T2201 Certificate

If you or your child has a disability, you or your child may qualify for the disability tax credit.

The disability tax credit (DTC) is a federal non-refundable tax credit given to (i) disabled individual taxpayers, and (ii) individual taxpayers upon whom disabled individuals are financially dependent and/or for whom they provide care, provided they meet the conditions set out in section 118.3 of the Income Tax Act.

In order to receive the disability tax credit, you will need to complete Form T2201, “Disability Tax Credit Certificate”, and file it with the Canada Revenue Agency (“CRA”). The certificate must describe:

• the nature of the impairment;
• the manner in which the impairment has affected your (or your child's) ability to perform a basic activity of daily living; and
• the expected duration of the impairment, which must be for a continuous period of at least 12 months.

Part of the certificate must be completed by a qualified practitioner, and the Canada Revenue Agency must validate the certificate before you will be entitled to receive the credit.

An individual may also qualify for the disability tax credit if he or she has multiple symptoms that, on a cumulative basis, have an impact similar to a marked restriction on any one activity of daily living. Individuals who have a severe and prolonged impairment do not need to prove a marked restriction in a basic activity of daily living if they can prove that they would have such a restriction if they were not receiving therapy that:

• is essential to sustain a vital function;
• is required to be administered at least three times each week for a total duration averaging not less than 14 hours a week; and
• cannot reasonably be expected to be of significant benefit to persons who are not so impaired.

The DTC comprises a “Base Amount” and, if applicable, a “Supplemental Amount,” which is available to eligible persons who are under 18 years of age at the end of the tax year. The federal DTC portion is 15% of the disability amount for that tax year. The 15% is applied to the federal disability amount, which is a non-refundable tax credit that is indexed to inflation each year. The provincial DTC portion is approximately 10% (the percentage varies from province to province) of the disability amount for that tax year.

How to apply - Disability tax credit (DTC)

How to apply for the disability tax credit (DTC) by completing form T2201. A medical practitioner must certify the form before submitting the application.

www.canada.ca

ii) CPP Disability Benefits

Canada Pension Plan disability benefit toolkit

This toolkit is a guide to understanding the eligibility rules for the Canada Pension Plan disability benefits; and applying for the Canada Pension Plan disability benefit and the disabled contributor’s child’s benefit.

www.canada.ca

If you have contributed to the Canada Pension Plan (”CPP”) through your employment and you have a "severe and prolonged" disability, you may be eligible to receive Canada CPP disability benefits. In order for a disability to be considered "severe", you must not be able to work regularly at any job, and in order for it to be "prolonged", your condition must be long term.

In order to receive disability payments, you must have contributed to the CPP during four out of the six years previous to the disability. If you qualify, benefits will start four months after you have been classified as disabled, and will continue until you begin to receive CPP retirement benefits, or the time of your death, whichever is earlier. You must be between the ages of 18 and 65 to qualify.

If you qualify to receive a disability benefit and if you have a dependant child under 18 years of age, a child who is between 18 and 25 and who is attending school full time, or a child over the age of 18 who has a disability, he or she may also be entitled to receive a monthly benefit.

CPP disability benefits are generally considered taxable income, but no tax withholdings will be made from the payments unless you request them. You should try to calculate the amount of tax you may have to pay as a result of receiving the payments, and either save the appropriate amount each month or fill out the form entitled Request for Voluntary Federal Income Tax Deductions to have the appropriate amount deducted from your cheque.

Canada Pension Plan disability benefits: Apply

Steps to apply for the Canada Pension plan disability benefits

www.canada.ca

B. BC Disability Assistance

Services for people with disabilities

If you are living with a disability in B.C., there are a vast array of government programs and services available to you.

www2.gov.bc.ca

i) BC Disability Assistance Benefits

Recipients may receive provincial disability benefits in addition to CPP disability benefits, in the form of a top-up, if their CPP disability benefits fall below the provincial minimum or if they never contributed to CPP.

The BC Employment and Assistance for Persons with Disabilities Act (“EAPDA”) and the Employment and Assistance for Persons with Disabilities Regulation, B.C. Reg. 66/2023 provides social assistance to disabled individuals whose assets and income do not exceed certain thresholds.

The EAPDA and related regulations currently provide the following monthly benefits:

• $1,483.50 if you are single;
• $2,548.50 if both you and your spouse have Persons with Disabilities designation and have no children;
• $1,828.50 if you are a single parent with one child;
• $2,268.50 if you or your spouse have Persons with Disabilities designation and one child;

Note: you are living in a Community Living BC funded residence, you may get up to $1,483.50 per month in disability assistance. From your $1,483.50, you pay your Community Living BC service provider $841.13 per month for your basic living costs. This leaves you with up to $642.37 for personal expenses.

Other benefits you may be eligible for are set out here:

General and health supplements

When you receive assistance, you may be eligible for more money or services to cover extra costs.

www2.gov.bc.ca

ii) Qualifications to be a Person With a Disability (PWD)

iii) Asset Test

The Regulations provide that a family unit is not eligible for assistance if the family unit has assets with a total value of more than the following:

• Single person: $100,000, if the family unit has one applicant or recipient who is designated as a person with disabilities (PWD);
• Couple: $200,000, if the family unit includes one applicant or recipient who is designated as PWD and another applicant or recipient who has applied for and not been denied a designation as PWD or if the family unit includes two applicants or recipients who are designated as PWD.

If the family unit has assets that are in excess of the relevant threshold, benefits are lost for the month that the funds are received and every month after that until below the threshold again.

When determining eligibility, certain types of assets are exempt from the calculation, such as:

• a Home;
• a Vehicle;
• a RESP;
• a RDSP;
• Up to $200,000 in a non-discretionary trust; and
• Any amount in a discretionary (Henson) trust.

The EAPDA defines a "family unit" as an applicant or recipient and his or her dependants, and "applicant" and "recipient" as including a person's dependent spouse and other dependent adults. Therefore, the $100,000 limit will apply where the applicant or recipient does not have a spouse or other adult designated as a PWD who is dependent upon them.

It’s mandatory that the PWD file income taxes (with assistance for first time tax filers who are on disability assistance). Also, note that divesting of, or failing to pursue, assets may attract sanctions or a loss of PWD status.

Note: under BCEA legislation, a patient’s own real and personal property, which is controlled by a committee, is treated by the Ministry as if held in a discretionary trust for the adult and does not count towards a client’s assets.

See Trusts section below for more information on trust planning.

iv) Income Test

The monthly amount of disability assistance in British Columbia is reduced dollar for dollar by income, whether it is earned or unearned, unless a specific exemption applies. Here are some of the exemptions that apply:

• Earned income exemption: A single person on disability assistance can earn up to $16,200 per year without it affecting their benefits. For couples, each partner can earn up to $16,200 per year;
• Exemptions for unearned income: Inheritances, education and training allowances, bursaries, scholarships, and child support payments are exempt from being counted as income for the purpose of reducing disability assistance;
• Trust income: Income received from a trust, such as payments made payable (T3), will reduce disability assistance unless the preferred beneficiary election applies;
• RDSP withdrawals: Withdrawals made from a Registered Disability Savings Plan (RDSP) for any purpose are exempt from being counted as income.
• Exempt payments from trusts and structured settlement annuities: payments received from a trust or a structured settlement annuity for "disability-related costs," a home, an RESP, or an RDSP are exempt from being counted as income. See below.
• Ongoing gifts of cash: Ongoing gifts of cash from friends or family members for assistance with utilities or rent will not count as income.

v) Disability Related Costs

In British Columbia, certain payments received from a trust or a structured settlement annuity for "disability-related costs" are exempt from being counted as income for the purpose of reducing Disability Assistance. The following items or services fall under this category and are considered exempt:

• Devices or medical aids to improve a person's health or well-being;
• Caregiver or other services related to a person's disability;
• Education or training;
• Renovations to a person's principal residence to accommodate their needs;
• Maintenance of a person's principal residence; and
• Any other item or service that promotes a person's independence (unlimited amount).

vi) Temporary Exemption of Assets

Assets will be exempt for the purposes of calculating asset limits if they are contributed to an RDSP or trust within three months (i.e inheritance or accident settlement). Control over the assets by the PWD should be restricted during the interim period.

vii) Application Process to Obtain PWD Status

Prior to applying for the PWD designation, the applicant should start an application for or be in receipt of income assistance with the Ministry. At the intake appointment, an eligibility assessment will be completed to determine if the applicant (and their family members, if applicable) meet residency, citizenship and identification requirements, as well as income and asset tests.

4. Estate Planning Options for Disabled Beneficiaries

A. Trusts Generally

Estate planning for disabled beneficiaries will often involve the use of trusts. In most circumstances, your client(s) will be the parent(s) who are planning for a child with a disability.

Funds held in a “Henson” trust are generally not treated as an asset of a PWD. Therefore, the PWD beneficiary may continue to qualify for provincial disability assistance through the EAPDA.

Trusts provide a way for PWD clients and their families to transfer and safeguard their assets for meeting disability‐related costs now and in the future while remaining eligible for disability assistance. Trusts are also useful tools where the PWD is unable to manage money for themselves due to capacity issues and/or have a higher level of susceptibility. A trust can be a safeguard to avoid future abuse when capacity fails. It can also be utilized to design a governance structure in advance with respect to the role of trustees.

A trust is a relationship under which a person, called the settlor, transfers property to another person, called the trustee, who holds that property for the benefit of another person, called the beneficiary.

Trusts can be “inter vivos” or “testamentary.” An inter vivos trust is created during the settlors lifetime. Pursuant to the Income Tax Act, most inter vivos trusts are taxed at highest marginal tax rate and are not eligibile for the principal residence exemption. Also beware of the section 75(2) income attribution rules which can operate such that income of one person (the actual recipient of the income) is attributed to and becomes income of another person (the transferor).

A "testamentary trust" is defined as a trust that arose "on and as a consequence of the death of an individual” and where no one other than the deceased has contributed property. In a testamentary trust, the settlor is the testator, also known as the “will-maker.”

Trusts can also be “discretionary trusts” or “non-discretionary trusts,” the distinction relating to the power and control, or lack thereof, each of the trustee and the beneficiary have in managing the assets of and administering the trust.

When leaving an inheritance to a beneficiary with a disability, it is generally not recommended to leave it to them directly. In most cases, it is recommended that any inheritance be left in a discretionary trust, otherwise known as a "Henson trust,” named after the hallmark decision in Ontario (Director of Income Maintenance Branch of the Ministry of Community and Social Services) v. Henson (1987), 26 O.A.C. 332 (Div. Ct.), aff’d in (1989), 36 E.T.R. 192 (Ont. C.A.)). A Henson trust is generally created in the terms of the parent's will and thus is a testamentary trust.

The central feature of a Henson trust is that it is discretionary, meaning the trustee is given ultimate discretion with respect to income and/or capital payments out of the trust to the person with disabilities for whom the trust was settled, the effect being that the latter (a) cannot compel the former to make payments to him or her, and (b) is prevented from unilaterally collapsing the trust under the rule in Saunders v. Vautier (1841), Cr. & Ph. 240, 41 E.R. 482.

Because the person with disabilities has no enforceable right to receive any property from the trustee of a Henson trust unless and until the trustee exercises his or her discretion in that person’s favour, the interest he or she has therein is not generally treated as an “asset” for the purposes of means-tested social assistance programs (Waters’ Law of Trusts in Canada). The Henson trust therefore makes it possible to set aside money or other valuable property for the benefit of a person with disabilities in a manner that won’t jeopardize that person’s entitlement to receive social benefits. This type of planning was recently upheld in S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4, [2019] 1 S.C.R. 99.

B. Disability Assistance and Trusts

As noted above, trusts continue to be an effective vehicle in estate planning for PWDs to retain eligibility for disability benefits.

In addition to trust law, and the legislative and regulatory framework guiding disability assistance and trusts, the Ministry of Social Development and Poverty Reduction (“SDPR”) also publishes an information booklet titled Disability Assistance and Trusts (the “Trust Policy”). The terms of the Trust Policy, while aligned with the legislation and regulation, is merely a convenient statement of how the legislation, regulation, and trust law functions. Hence, practitioner familiarity with the EAPDA, Regulation, and trust law, generally, must take precedence.

The Ministry of Social Development and Poverty Reduction trust policy (”Trust Policy”) is found below:

Trusts

Clients who have the persons with disabilities (PWD) designation and applicants for the PWD designation may have extra costs directly related to or as a result of their disability.

www2.gov.bc.ca

BC Trust Policy identifies two types of trusts:

1. Non‐Discretionary Trusts; and
2. Discretionary Trusts.

These two terms describe what kind of power/control the trustee(s) have in managing the assets in the trust.

i) Non-Discretionary Trusts

As noted above, a PWD may be the beneficiary of up to $200,000 in a non-discretionary trust where the trustee holds assets in trust for the individual but does not have exclusive discretion over how assets are managed, i.e. the disabled beneficiary may have some input. Trust Policy does not specify how much control on the part of a beneficiary would make a trust non‐discretionary.

This non-discretionary trust is considered an exempt asset, so long as the capital contributed does not exceed $200,000, or if in excess then special approval must be given by the Minister. The trust should be be reviewed by the Legislation and Litigation Branch in Victoria. Note that payments from the trust will impact disability assistance unless it is used for “disability-related costs”, the acquisition of a home, an RESP, or an RDSP. There is no limit to the amount that can be paid from the trust to promote independence.

Even if the amount of the anticipated estate is less than $200,000, it may still be recommended that all amounts be left in a discretionary trust, since it is possible that the amount in the trust could grow over time to exceed the maximum allowable amount. It is also possible that the threshold will change in the future. Given the relatively low thresholds, if you intend to leave an inheritance to a child, you should consider leaving the assets in a discretionary Henson trust, particularly where the beneficiary with a disability has a mental infirmity that would prevent him or her from properly managing his or her own funds.

ii) Discretionary Trusts

A PWD can be the beneficiary of assets in any amount in a discretionary trust (i.e. a Henson trust) and retain eligibility for disability benefits. As noted above, in a Henson trust, the trustee holds assets in trust for the life of a disabled individual. The trustee has sole discretion as to how much, if any, income and capital is paid out to a disabled individual, or for benefit of disabled individual. The PWD beneficiary is deemed to hold a nominal “beneficial interest in assets held in the trust” but no right to income from the trust, nor can the PWD beneficiary be said to have a right to any of the estate capital.

A Henson trust can be testamentary or inter vivos, for example for accident settlements and outright inheritances that exceed asset limits.

C. Drafting Trusts

i) Issues to Consider

There are a number of issues to be aware of when designing a discetionary trust:

• wording must include “absolute and unfettered discretion” and “shall not vest” in the beneficiary;
• There should be a class of beneficiaries in addition to the disabled beneficiary ‐ “ultimate beneficiary” clause;
• The trust can state the settlor’s preference that funds be used exclusively for the disabled beneficiary regardless of any ultimate beneficiary to excuse the trustee from the “even‐handed” principle;
• If the beneficiary can collapse the trust or otherwise control assets, for example by controlling who is trustee, the Ministry will treat it as a non-discretionary trust; and
• If the beneficiary transfers, or directs the transfer, of assets to a discretionary trust, it may be considered a “divestiture of assets.’

ii) Permitted Expenditures From a Trust: Disability Related Costs

As with non-discretionary trusts, payments from the trust will impact disability assistance eligibility unless the funds are used for “disability-related costs” or to promote independence, specifically:

• Caregiver services or other services related to that person’s disability.
• Education or training.
• Home renovations necessary because of your disability.
• Home maintenance repairs.
• Medical aids.
• Any other item the trustee/beneficiary considers necessary to promote the person’s independence (no limit).

iii) Choosing a Trustee: Factors to consider

Questions for the client to consider:

• Do you want to have the ability to remove and/or replace trustee(s) or permit them the opportunity to resign?
• Does the trustee have knowledge of Trust Law, EAPDA, Regulation and Policy?
• Where does the intended trustee live (logistical and tax considerations)
• Does the trustee know the disabled beneficiary and is there an ongoing relationship between that trustee and disabled beneficiary?
• Avoiding Conflict ‐ Family / Friend versus selecting a Corporate Trustee

D. Tax Considerations for Trusts

i) Preferred Beneficiary Election

If the beneficiary with a disability meets certain conditions, he or she may be able to take advantage of the "preferred beneficiary election", which is provided for in the Income Tax Act. This election provides that certain beneficiaries may report the income earned in the trust in their own tax return, yet have the income itself remain in the trust and continue to be managed by the trustee of the trust. In general, individuals must qualify for the DTC in order to be a preferred beneficiary. However, adults who don't qualify for the DTC but are dependent on another person because of mental or physical infirmity can qualify as preferred beneficiaries if their income is below the basic personal amount. 

If the beneficiary is in a very low tax bracket, it may be beneficial to have the trust income taxed in their name personally. In order to use the preferred beneficiary election, the beneficiary must be either the spouse or common-law partner of the person who created the trust, or a lineal descendant or spouse or common-law partner of a lineal descendant. This can include a child, step-child, grandchild, step-grandchild, great-grandchild or step-great-grandchild or a spouse or common-law partner of any of those persons.

ii) 21 Year Disposition Rule

Henson trusts usually continue for the lifetime of the disabled beneficiary. Therefore, they often exist beyond 21 years. Under the Income Tax Act there is a "deemed disposition" of all of the assets in the trust on the 21st anniversary of the creation of the trust (subject to a few exceptions). The trustees of the trust should give consideration to triggering some of the capital gains in the trust a few years before the 21st anniversary, to avoid having all the gains taxed at one time.

iii) T3 Trust Return and New Reporting Rules

All trusts are required to maintain records and to abide by any terms in the trust documents (typically spelled out in the will). A T3 trust return must be filed annually by the trustee.

For taxation years that end after December 30, 2023, the new reporting rules will require the trustee to report the name, address, date of birth (in the case of an individual), jurisdiction of residence and taxpayer identification number (TIN) for each of the:

• settlor;
• trustee;
• beneficiary, and
• person who has the ability to exert influence over trustee decisions regarding appointment of income or capital of the trust (e.g. a protector) in the year.

If the PWD qualifies for the disability tax credit (“DTC”), it’s important to ensure the discretionary testamentary trust meets the conditions necessary to be considered a “qualified disability trust” (a “QDT”) to obtain access to graduated tax rates and potential access to the principal residence exemption. See below for further information in this regard.

iv) Qualified Disability Trust (QDT)

Another potential benefit to creating a Henson trust is the preferential tax treatment that may be available so long as the trust meets the conditions necessary to be considered a "qualified disability trust" ("QDT") under the Income Tax Act. Unlike most trusts, which are subject to the highest marginal rate of tax on all of their income, QDTs can take advantage of the graduated rates of tax. A QDT trust is also allowed the primary residence exemption. The purpose of QDT trusts is to allow deceased taxpayer a tax efficient mechanism to provide income and capital to assist a disabled beneficiary of their estate. A QDT must have a December 31st year end.

There are a number of conditions that must be met in order to be a QDT, including:

• the trust must be a testamentary trust that arose on and as a consequence of a particular individual's death;
• the trust must be resident in Canada for the entire trust year (residency is determined by the "central management and control" of the trust, which is a question of fact, but usually based on the residency of the trustees of the trust);
• the trust must elect with one or more beneficiaries to be a QDT for the trust year and provide the social insurance number for each of those beneficiaries. There is no relief for filing a late election, and if the beneficiary is incapable, they may need a court appointed guardian to help them make this election;
• each of the electing beneficiaries must be an individual who qualifies for the DTC and does not jointly elect with any other trust to be a QDT (an individual can only have one QDT); and
• The electing beneficiaries of a QDT must be named beneficiaries in the will (cannot be unnamed unborn children or described by reference to a class of individuals such as “children” or “issue”).

E. Registered Disability Savings Plan (RDSP)

Registered Disability Savings Plan

  This website is provided by Plan Institute, a not-for-profit organization based in Vancouver, B.C. It was created to provide families and professionals across Canada with the most accurate and up-to-date information available on the RDSP. All of our services are … Read More

www.rdsp.com

i) What is the RDSP

Registered disability savings plans ("RDSPs") are a long-term savings vehicle for persons with disabilities, similar to RRSPs. Unlike RRSPs, contributions are not tax deductible, but RDSPs do grow on a tax-deferred basis within the plan and may attract the payment of government grants and bonds.

You set up a registered retirement savings plan through a financial institution such as a bank, credit union, trust or insurance company. Your financial institution will advise you on the types of RRSP and the investments they can contain.

Anyone can contribute to an RDSP (as long as the person directing the plan accepts the contribution). Once an RDSP is established for the benefit of a specific disabled individual, friends and family— even the disabled individual — can contribute to that plan. However, all funds in the RDSP are for the benefit of the disabled individual. A family member who contributes to the RDSP cannot get his or her contributions back.

In order to open a RDSP, the beneficiary must be eligible for the DTC, discussed above, and be a resident of Canada at the time any contributions are made. Only one account may be opened in respect of any one beneficiary, and there is a lifetime contribution limit of $200,000, although there are no annual contribution limits. Contributions are not allowed after the year in which the disabled beneficiary turns 59. It is possible to switch a RDSP from one financial institution to a new financial institution.

Contributions to an RDSP may result in the payment of a Canada Disability Savings Grant ("CDSG") based on the "family net income" of the beneficiary and the amount contributed, if the family earns less than approximately $100,000 annually. The government will match the first $500 in contributions with a CDSG in the amount of 300% of the contribution, and 200% of the next $1,000 contributed in a taxation year, to a maximum annual grant of $3,500. This means that a contribution of $1,500 can result in $3,500 in grants, for a total of $5,000 in the RDSP in any given year. Where the family income is over $100,000, the CDSG will be matched on a basis of 100% of annual contributions up to $1,000, for a maximum annual grant of $1,000. The maximum total amount of grant that may be received by any one beneficiary regardless of family income over the course of their lifetime is $70,000.

In addition, families with very low income levels may qualify for a Canada Disability Savings Bond ("CDSB") of up to $1,000 per year, with a $20,000 lifetime limit. The CDSB is paid where the individual has income below approximately $33,000, at which point a clawback begins. If the family earns more than approximately $50,000, no CDSB will be paid. Persons with a disability who are from very low-income families should open an RDSP simply to obtain the CDSB, since the bond is payable even if no contribution is made. Once a beneficiary turns 18, it is only their income (and their spouse's) which is relevant when calculating "family net income", so adult persons with a disability who earn less than $33,000 should open an RDSP simply to receive the $1,000 bond, although they will not be able to immediately withdraw this money without penalty, as discussed below

Unused CDSG and CDSB entitlements can be carried forward 10 years, and there is no impact on federal or provicial disabilty benefits. CDSGs and CDSBs will not be payable after the year in which the beneficiary turns 49.

ii) RDSP Eligibility

As noted above, to be eligible, an applicant must:

• Be a Canadian resident;
• Have a Social Insurance Number (SIN); and
• Be approved for the T2201 Disability Tax Credit Certificate.

Age Criteria:

• Matching Bonds and Grants are available up until age 50 for the disabled beneficiary, based on income;
• Contributions can only made while the disabled beneficiary is under 60; and
• Disabled beneficiaries must open their RDSP no later than December 31 of the year they turn 59.

iii) RDSP Holder Options & Contractual Competency

• For a Minor

Parents or legal guardians can set up the plan and have the option to remain as sole or co-holder once the beneficiary becomes an adult.

• For an Adult

The holder and beneficiary can be the same person, although it may be somebody else dependent on contractual competence. The responsibility of determining ‘contractual competency’ is often left to the discretion of the financial professional. An adult who does not have contractual competence requires a legal guardian (committee in BC).

iv) RDSP Withdrawal Considerations

v) RDSP - LDAPs vs DAPs

Withdrawals – Two Types of Payments

2. Lifetime Disability Assistance Payment – LDAP
• Must begin when the disabled person turns 60 and once started must continue;
• Payments which, once started, are payable at least annually until either the plan is terminated or the beneficiary dies;
• Annual maximum based on life expectancy and value of plan;
• LDAP Formula calculates payments to end at age 83; and
• must be available for every RDSP.

vi) RDSP 10 Year/Proportional Repayment Rule

Once money goes into the plan, it has to stay there for ten years before the person with a disability can take it out without penalty. Generally speaking, any time $1 is withdrawn from an RDSP, that will trigger a clawback of $3 of the "assistance holdback amount", which is the total amount of grants and bonds paid into the plan in the preceding ten-year period. The only exception to this is where the RDSP beneficiary's doctor certifies that his or her life expectancy is less than 5 years. Therefore, RDSPs are generally recommended in situations where it is anticipated that the beneficiary will not require the funds for many years.

Assistance Holdback Amount (AHA): The AHA is made up of all the grants and the bonds that have been paid into the RDSP within a 10-year period for a beneficiary by the Government of Canada, less any amount of grant and bond that has been repaid to the government during that 10-year period. The AHA is the maximum amount of money that can be subject to repayment. It is important to note that once grants and bonds have been repaid to the government, the beneficiary is no longer eligible to receive those.

vii) RDSP - Shortened Life Expectancy

A medical practitioner must certify in writing that the beneficiary has a life expectancy of 5 years or less. In that case, there are two options:

1. opt to keep the plan as an RDSP which is now in a specified year; or
2. change the plan to an SDSP.

A specified disability savings plan (SDSP) is a measure to provide beneficiaries who have shortened life expectancy with greater flexibility to access their savings from an RDSP.

There is no consequence to living past the five year life expectancy date, and the plan can be reverted at any time

viii) RDSP - DTC Loss Withdrawals

Grant and bond repayment does not function as usual. Withdrawals are calculated differently depending on the beneficiary’s age.

ix) RDSP Taxation

When money is in an RDSP, no tax is paid. Personal contributions are not taxable at any time. Each distribution paid to a beneficiary is a mix of taxable and non-taxable amounts. Withdrawals may be subject to tax if the withdrawal amount is more than the total of two non-refundable tax credits: the basic personal amount (BPA) and the disability amount (DA).

The federal maximum amount for 2022 is $14,398 for the BPA plus $8,870 for the DA. This means that if the taxable portion of one’s withdrawals in 2022 are equal to or below $23,268 there will be no tax withheld at the source.

If there is tax that is going to be withheld, the RDSP issuer (one’s financial institution) will automatically make a withholding for tax before issuing the payment. This is not the same as paying the tax. Instead, the financial institution will report both the gross taxable amount and the withholdings to the Canada Revenue Agency (CRA) and to the beneficiary through a tax form.

x) RDSP Closure

1. Closing an RDSP – Optional Closure

2. Closing an RDSP – Mandatory Closure

xi) What happens when a beneficiary dies?

F. RRSP/RRIF Rollovers

G. RRSP/RRIF/RESP Transfer to RDSP

It is possible to make a tax-deferred transfer of a deceased individual’s RRSP to the RDSP of a financially dependent infirm child or grandchild. The deceased must have (prior to the deceased’s death) named the infirm child or grandchild as the beneficiary of the RRSP.

The RDSP beneficiary must have been financially dependent on the deceased individual by reason of physical or mental infirmity. An infirm child or grandchild is generally considered to be financially dependent if the income of the child or grandchild for the year preceding the year of death does not exceed a specified threshold. If the infirm child or grandchild has income that exceeds this amount, it will be necessary to prove financial dependence.

The amount of RRSP proceeds transferred to the RDSP cannot exceed the available RDSP contribution room in respect of the infirm child or grandchild. Accordingly, no more than $200,000 can be transferred from the RRSP to the RDSP (this amount is reduced by any previous contributions made to the RDSP by any private individual).

The amount transferred from the RRSP will count against the $200,000 lifetime RDSP contribution limit but will not qualify for matching government grants (the Canada Disability Savings Grants). Since the amount transferred from the RRSP will not have been subject to income tax, that amount will be taxed as income when withdrawn from the RDSP.

You can transfer money from a child’s RESP into that same child’s RDSP if certain conditions are met. You’ll have to pay back education savings grants to the government, but so long as the criteria is met, you won’t have to pay any taxes on those earnings in the RESP.

Here is a graph to help clarify what registered funds are permitted to be rolled over into a RDSP:

H. RRSP/RRIF Transfer to Lifetime Benefit Trust (LBT)

Established in a a will, the LBT is intended to address the problems that can arise if the financially dependent child suffers from a mental impairment. Under the LBT structure, you can leave your RRSP/RRIF on a tax-deferred basis to a trust (not a RRSP or RRIF) established for a mentally infirm and financially dependent child.

The trust transfer is conditional on the child being dependent, because of mental infirmity, on the deceased individual immediately before their death and must be a personal trust where, during the child’s lifetime, no person other than the child may benefit from the income or capital of the trust (s. 60.011 of the Act).

The entire RRSP/RRIF payout must be used to purchase a qualifying trust annuity (QTA). An annuity is a form of investment that pays an annual amount for the remaining lifetime of a specified person (in this case, the infirm dependent) or for a fixed term (in this case, the maximum fixed term would be equal to 90, minus the age of the child).

There is some negotiation room as to the exact terms of the annuity acquired. However, the annual payments will usually depend on economic expectations and interest rates that are prevalent at the time that the annuity is purchased.

The LBT would acquire the annuity and would receive the annuity payments. The trustee would then decide whether and to what extent to pass the annuity payments through to the child. All amounts passed through to the child would be taxed as ordinary income of the child. On the death of the child, any remaining value of the annuity will be taxed as ordinary income of the child. The terms of the LBT could provide that the after-tax amount be paid to other persons after the death of the child.

I. Life Insurance

Clients with modest estates may consider funding a Henson trust for a child with disabilities via a whole life or universal life insurance policy. At current rates, a 50-year-old female could obtain $100,000 of universal life coverage for less than $1,500 in annual premiums. If the disabled beneficiary still lives with their parent/guardian and receives disability benefits, the benefits could fund the annual premium within a couple of months each year, guaranteeing an inheritance that would take decades to accumulate via saved premiums.

5. Assisting an Adult Disabled Person with Decision Making

Capacity requires the ability to understand the information that is relevant to the decision to be made (such as where one will live and what care may be required) and the ability to appreciate the reasonably foreseeable consequences of the decision. Capacity may change over time and must be reassessed when there is a change. It is not black or white, but rather a continuum, and there may be capacity to make simple decisions while a lack of capacity to handle more complex matters. Decision making authority assumed by others must not usurp decision making more than is necessary in the circumstances.

Authority may be needed for parents to continue to provide care and protection for adult disabled children upon reaching age of majority (19 in BC). Access to medical, financial and educational records and decision making for adults is restricted without legal authority, including access to federal and provincially funded programs and benefits. This can come as a surprise to parents who have cared for a disabled child since birth. It’s important to plan ahead and make a committeeship application (if necessary), in advance of the disabled beneficiary’s 19th birthday.

Decision Making Options Available for Adult Disabled Beneficiaries:

• Powers of Attorney for legal and financial affairs;
• Representation Agreements for health and personal care issues and “routine management of the adult’s financial affairs”;
• Nominations of Committee under the Patients Property Act;
• Committeeship proceedings under the Patients Property Act; and
• Wills to deal with property after death.

A. Powers of Attorney

A power of attorney is a document under which an adult (sometimes called the “donor”) grants another person the power to administer the adult’s financial and legal affairs. At common law, a power of attorney ceases to be effective if the adult (donor) becomes incapable. To be an “enduring power of attorney”, s. 14 of the BC Power of Attorney Act requires that the document must contain the provision that the attorney is to continue despite the adult’s incapability.

An adult must have legal capacity to execute a valid power of attorney. The test for capacity to execute an enduring power of attorney is found in ss. 11 and 12 of the Power of Attorney Act. These sections include a presumption of capability provision and a definition of what renders an adult incapable of granting an enduring power of attorney. The capacity test in s. 12 provides that an adult is incapable of understanding the nature and consequences of the proposed enduring power of attorney if the adult cannot understand all of the following:

1. the property the adult has and its approximate value;
2. the obligations the adult owes to their dependants;
3. that the adult’s attorney will be able to do on the adult’s behalf anything with respect to the adult’s financial affairs, except make a will, subject to the restrictions contained in the enduring power of attorney;
4. that unless the attorney manages the adult’s business and property prudently, their value may decline;
5. that the attorney might misuse the attorney’s authority;
6. that the adult may, if capable, revoke the enduring power of attorney; and
7. any other prescribed matter.

B. Representation Agreements

In the absence of advance planning, health care decisions for an adult may be made under the Health Care (Consent) and Care Facility (Admission) Act by a temporary substitute decision-maker. The Representation Agreement Act provides for the advance appointment of a representative for health and personal care issues and “routine management of the adult’s financial affairs”.

Two basic types of representation agreements are available—a standard agreement (under s. 7 of the Representation Agreement Act), and a “non-standard” (or “enhanced”) agreement (under s. 9).

The Act defines the level of capacity needed to execute a standard representation agreement. Section 8 of the Act provides that an adult may make a s. 7 agreement even though they are incapable of making a contract or managing their personal or financial affairs. This diminished level was created to allow an adult with less than full (or any) legal capacity to enter into such an agreement; but a s. 7 agreement is limited in the scope of its authority. The enhanced agreement requires full mental capacity, but can be very broad in its authority.

i) Standard Representation Agreement (section 7)

s. 7 agreements are designed to govern decisions about an individual’s personal care and the routine management of the person’s financial and legal affairs.

Under s. 7 of the Representation Agreement Act, a “standard” agreement can be made by an individual who has less than full legal capacity.

The test for capacity to enter into a “s. 7 agreement” is set out in s. 8:

8 (1) An adult may make a representation agreement consisting of one or more of the standard provisions authorized by section 7 even though the adult is incapable of

(a) making a contract,

(b) managing his or her health care, personal care, or legal matters, or

(c) the routine management of his or her financial affairs.

2) In deciding whether an adult is incapable of making a representation agreement consisting of one or more of the standard provisions authorized by section 7, or of changing or revoking any of those provisions, all relevant factors must be considered, for example:

(a) whether the adult communicates a desire to have a representative make, help make, or stop making decisions;

(b) whether the adult demonstrates choices and preferences and can express feelings of approval or disapproval of others;

(c) whether the adult is aware that making the representation agreement or changing or revoking any of the provisions means that the representative may make, or stop making, decisions or choices that affect the adult;

(d) whether the adult has a relationship with the representative that is characterized by trust.

Section 7(1)(b) authorizes decisions concerning routine management of the adult’s financial affairs, including, subject to the regulations, including:

(i) payment of bills,(ii) receipt and deposit of pension and other income,(iii) purchases of food, accommodation and other services necessary for personal care, and(iv) the making of investments;

A s. 7 representative has the power to open a registered disability savings plan (“RDSP”) and to make an election in respect of a qualified disability trust (“QDT”). Gifting an adult’s property is one of the activities that is not permitted, and thus a representative cannot settle a trust on behalf of an adult (Re Apsassin (24 March 2010), Vancouver S099195 (B.C.S.C.)).

To make a s. 7 agreement, the adult must appoint a monitor, unless the representative is the adult’s spouse, a trust corporation, or a credit union, or if there are two or more representatives that must act together. If the adult does not appoint a monitor, the Public Guardian and Trustee may choose someone or become the monitor by default. Under s. 20 of the Representation Agreement Act, a monitor is directed to “make reasonable efforts to determine” that the representative is fulfilling the representative’s obligations to the adult.

With respect to health care decisions, a s. 7 agreement provides that only decisions regarding items defined as “major health care and minor health care” in the Health Care (Consent) and Care Facility (Admission) Act are permitted.

Major health care is defined in s. 1 of the Health Care (Consent) and Care Facility (Admission) Act as follows:

“major health care” means

(a) major surgery,

(b) any treatment involving a general anesthetic,

(c) major diagnostic or investigative procedures, or

(d) any health care designated by regulation as major health care;

Under s. 4 of the Health Care Consent Regulation, the following procedures are also designated as “major health care”: radiation therapy, intravenous chemotherapy, kidney dialysis, electroconvulsive therapy, and laser surgery.

Minor health care is defined in s. 1 of the Health Care (Consent) and Care Facility (Admission) Act as follows:

“minor health care” means any health care that is not major health care, and includes

(a) routine tests to determine if health care is necessary, and

(b) routine dental treatment that prevents or treats a condition or injury caused by disease or trauma, for example,

(i) cavity fillings and extractions done with or without a local anesthetic, and

(ii) oral hygiene inspections;

The representative in a s. 7 agreement is not authorized to make a decision to refuse life-supporting care or treatment (Representation Agreement Act, s. 7(2.1)).

s. 7 agreements can be prepared by a layperson without the help of a legal practitioner.

ii) Non-standard Representation Agreement (Section 9)

Section 9 of the Representation Agreement Act provides for a broader agreement that enables an adult to grant the representative the power to, for example, refuse life-supporting care or treatment. A s. 9 agreement authorizes the representative to do anything the representative considers necessary in relation to the personal care or health of the adult, or to make any of the following decisions:

1. where the adult should live;
2. whether the adult should work;
3. whether the adult should participate in educational, social, vocational, or other activities;
4. who the adult should associate with;
5. whether the adult should apply for a licence, permit, or authorization;
6. day-to-day decisions about diet and dress;
7. giving or refusing consent for health care; and
8. physically restraining or moving the adult.

Representatives are not permitted to give consent for MAiD or refuse consent to the provision of professional services or treatment under the Mental Health Act, R.S.B.C. 1996, c. 288, if the adult is detained or on leave (s. 31).

C. Nomination of Committee

A “nomination of committee” allows adults to express their views to the court about who should be appointed to make financial and health care decisions on their behalf, if proceedings are brought under the Patients Property Act. A disabled beneficiary may wish to execute a nomination of committee in addition to a representation agreement for health care.

The capacity to nominate a committee is lower than the capacity to manage one’s affairs; the patient need only know what their wishes are.

D. Committeeship Proceedings

If the adult is incapable, any person may apply to court to be appointed committee. An individual, a trust company, or the Public Guardian and Trustee may be appointed committee of estate, but only an individual or the Public Guardian and Trustee may be appointed as committee of person. If a nomination of committee has been made, the court must appoint the nominee unless there is good and sufficient reason for refusing the appointment (Patients Property Act, s. 9).

The court can order a committee to post security when appointed. A nomination will often contain a statement that the nomination is without the requirement that the nominee post a bond. A committee may not be required if the incapable adult is being looked after by an attorney or representative or both.

E. Wills

A Will allows a disabled adult to specify who shall be the executor of his or her estates and who shall receive his or her property after his or her death. Section 36(1) of the BC Wills, Estates and Succession Act provides that “[a] person who is 16 years of age or older and who is mentally capable of doing so may make a will.”

The will-maker must have the requisite testamentary capacity. No person of unsound mind, who lacks testamentary capacity, is capable of making a valid will. Testamentary capacity is defined through the common law, not statute. The basic test is found in Banks v Goodfellow, (1870) LR 5 B 549 (QB) at para 569 [Goodfellow]. According to the Goodfellow case and subsequent decisions, to have testamentary capacity a will-maker must:

• Understand the nature of the act of making a will and its effects;
• Understand the extent of the property they are disposing;
• Be able to comprehend and appreciate the claims to which they ought to give effect; and
• Form an orderly desire as to the disposition of the property.

In  Nassim v Nassim Estate, [2022] BCSC 402 at para 41 [Nassim], the courts also outline a more “modern” form of the Goodfellow test: "The testator must be sufficiently clear in his understandings and memory to know, on his own, and in a general way (1) the nature and extent of his property, (2) the persons who are the natural object of his bounty and (3) the testamentary provisions he is making; and he must moreover, be capable of (4) appreciating these factors in relation to each other, and (5) forming an orderly desire as to the disposition of his property…"

The relevant time for assessing capacity is when the will-maker gave instructions and when the will maker-executed the will.

The law presumes that a will-maker has the requisite capacity if a will was duly executed in accordance with the formal statutory requirements after being read over to a will-maker who appeared to understand it.

To determine if a disabled adult has the requisite testamentary capacity to make a will, some inquiries would be: determining whether the will-maker can understand the nature of the testamentary act (that they are making a will), can recall the property and can comprehend that they are excluding possible claimants under intestacy or through a wills variation claim. Delusions or partial insanity will not destroy testamentary capacity unless they directly affect testamentary capacity or influence the dispositions in the will.

6. Disability Resources

A. Organizations

Planned Lifetime Advocacy Network

PLAN partners with families & people with disabilities to build personal support networks, implement plans to secure the future, and bring families together for mutual support & learning.

plan.ca

DABC

disabilityalliancebc.org

Coast Mental Health

For 45+ years, Coast Mental Health has empowered the recovery of people with mental illness by providing housing, support services & employment/education.

www.coastmentalhealth.com

Income Security Advocacy Centre

ISAC works to address issues of income security and poverty in Ontario

incomesecurity.org

Canadian Association for Community Living (CACL) – Level Access: A Web Accessibility Solution

Canadian Association for Community Living (CACL) is committed to web accessibility and our customers with disabilities. Learn more about our accessibility initiatives here.

www.levelaccess.com

HOME

www.peoplefirstofcanada.ca

B. Informational Websites

Home

A Representation Agreement is the only way to authorize someone to make health care and personal care decisions on your behalf. It can also cover routine financial and legal affairs. Enduring Power of Attorney only covers financial and legal affairs.

www.nidus.ca

Registered Disability Savings Plan

  This website is provided by Plan Institute, a not-for-profit organization based in Vancouver, B.C. It was created to provide families and professionals across Canada with the most accurate and up-to-date information available on the RDSP. All of our services are … Read More

www.rdsp.com

What is a registered disability savings plan (RDSP)

Information on how to set up and establish an RDSP. Additional information on eligibility requirements, taxation, payments, and Canada disability savings grants and bonds.

www.canada.ca

Canada Pension Plan disability benefit toolkit

This toolkit is a guide to understanding the eligibility rules for the Canada Pension Plan disability benefits; and applying for the Canada Pension Plan disability benefit and the disabled contributor’s child’s benefit.

www.canada.ca

Disability assistance

Disability assistance can help you if you need financial or health support. You must be designated as a person with a disability to receive this type of assistance.

www2.gov.bc.ca

Trusts

Clients who have the persons with disabilities (PWD) designation and applicants for the PWD designation may have extra costs directly related to or as a result of their disability.

www2.gov.bc.ca

Directory | BC Disability

The most comprehensive directory of disability resources in British Columbia and beyond. BC PWD 2023, Canada Disability Benefit, and more.

www.bcdisability.com

RA Forms

Nidus offers a Self-Help Course for making a registering a Representation Agreement with Section 7 standard powers. The Course includes the legal forms, registration with the Nidus Registry and tips for using the Agreement.

www.nidus.ca

C. Booklets

D. Application Forms

How to apply - Disability tax credit (DTC)

How to apply for the disability tax credit (DTC) by completing form T2201. A medical practitioner must certify the form before submitting the application.

www.canada.ca

Canada Pension Plan disability benefits: Apply

Steps to apply for the Canada Pension plan disability benefits

www.canada.ca

My Self Serve - Home

Government of BC - Ministry of Social Development and Poverty Reduction - My Self Serve website for Employment and Assistance (for Persons with Disabilities).

myselfserve.gov.bc.ca

Opening an RDSP

How do you open an RDSP?

www.canada.ca

E. Find a Lawyer

CBA British Columbia - Home

The BC Branch of the Canadian Bar Association BC represents over 6,000 lawyers, judges, law teachers and law students from across the province. Approximately two-thirds of all practicing lawyers in Canada belong to the CBA.

www.cbabc.org

Canada | STEP

Find legal, tax and practice information for Canada, and search for branches and members in the jurisdiction. If you have any comments on the report please contact editor@step.org

www.step.org

Wills Clinic

Our Wills Clinic provides low and modest income clients, who are over 55 years of age or terminally ill, with Wills, Representation Agreements and enduring Powers of Attorney.

www.accessprobono.ca

Pro Bono Estate Planning - Northshore Probono

Estate planning helps ensure that your final wishes are respected, that your children are looked after and that your estate provides the benefits you intended. Most people tend to put off thinking about what would happen if they were to die or become incapable of managing their affairs. There are three documents everyone should have:

northshoreprobono.ca

Get Help

seniorsfirstbc.ca

F. Find an Accountant

The CPA Profession | CPA Canada

Learn more about CPA Canada and our members, as well as what we do, how we support the public, and who we work with.

www.cpacanada.ca

G. Find a Professional Trustee

Regulated Trust Companies

BC Financial Services Authority is a Crown agency responsible for the supervision and regulation of the financial service sector, including credit unions, insurance, mortgage brokers, pensions, real estate professionals and trusts. We’re committed to providing oversight and to fair, transparent processes that benefit the public, and to providing the information to enable industry participants to comply with legislated requirements and best practices.

www.bcfsa.ca

Who We Regulate

www.osfi-bsif.gc.ca

7. Disability Precedents

Letters

Documents

Nicole Garton is president and co-founder of Heritage Trust.

Recognized by Best Lawyers in Canada for trusts and estates and family law, she previously chaired the Canadian Bar Association Wills and Trusts Subsection (Vancouver).

Contact Nicole by email or phone at (778) 742-5005 x216.

Heritage Trust is a leading non-deposit taking financial institution, regulated by the BC Financial Services Authority (BCFSA), a government agency of the Province of British Columbia. Heritage Trust offers caring and professional executor, trustee, power of attorney, committee, escrow and family office services to BC resident clients.

We welcome you to contact us.