The Registered Disability Saving Plan (“RDSP”) is a recent creation, intended to help parents and others save for the long-term financial security of a disabled person. When first announced, there was a lot of excitement about the utility of RDSPs as estate planning tools. Have they lived up to all of the hype?
RDSPs have several benefits, and can be a worthwhile planning tool. For instance, RDSP contributions do not impact a beneficiary’s Ontario Disability Support Program (“ODSP”) eligibility, which makes them an appealing option when leaving assets to a disabled person – a testator who wishes to leave a more modest gift to a beneficiary can direct assets be paid to the beneficiary’s RDSP so that ODSP eligibility is maintained without the cost of establishing and administering a Henson trust. Now, under proposed changes, RRSP rollover rules will be extended to allow a rollover of a deceased individual’s RRSP or RRIF proceeds to the RDSP of a financially dependent disabled child or grandchild. This tax deferral is an attractive reason for directing payment of the testator’s RRSP or RRIF to his or her child or grandchild’s RDSP.
However, as with most things, there are limitations. Although there is no annual limit on amounts that can be contributed to an RDSP in a given year, the overall lifetime contribution limit for a particular beneficiary is $200,000. Further, contributions cannot be made to an RDSP after the end of the year in which the beneficiary turns 59. A testator would be wise to consider these issues when drafting their Will or beneficiary designation, and plan for these contingencies. One option would be to direct that the gift be made to a Henson trust if impossible or impracticable to make it to the RDSP.
Lesson Learned: RDSPs are not a magical solution, but in the right circumstances they can form a helpful part of a complete estate plan.
Until next time,