What Happens If The RDSP Beneficiary Has Shortened Life Expectancy?

Awhile ago, I received a question from one of my email subscribers. This was an email from a mother where her son with disability has shortened life expectancy.

Here was my response:

“Thank you for your question, XXX [name is hidden to protect her privacy]. I’m so sorry to hear about your situation.

If the beneficiary (*) meets the requirements for a shortened life expectancy, one of the options is to apply to the government, and convert the RDSP into a Specified Disability Savings Plan (SDSP). This allows beneficiary a greater flexibility in accessing their RDSP savings.

(*) Beneficiary is the person who approved with the disability tax credit

After the conversion, no further contributions can be made (except proceeds from an RRSP or RRIF from a deceased parent or grandparent) and no grant and bond will be paid. Withdrawals from an SDSP do not trigger repayment of the assistance holdback amount (10-year claw back rule), as long as the total taxable withdrawals in a year do not exceed $10,000, unless required by the LDAP formula.

Therefore, the beneficiary could draw out the capital, bonds and grant over a 5 year payment without having the grant and bond repaid. 

The RDSP becomes an SDSP when all of the following conditions are met:

  • a licensed medical doctor or a nurse practitioner certifies in writing that the beneficiary of an RDSP is, in their professional opinion, unlikely to survive more than five years
  • the holder of the RDSP elects in prescribed form and provides the election, along with the medical certification, to the issuer of the RDSP and
  • ESDC receives notification of the election from the issuer
Quote from Canada.ca – What is a specified disability savings plan (SDSP)

Here’s an infographic with more details regarding shortened life and RDSPs.

Hope this would be helpful to your family”

Sources:

  • Canada.ca
    • What is specified disability savings plan (SDSP)? (source)


Disclaimer:

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as investment, financial, legal, accounting or tax advice. Please obtain independent professional advice, in the context of your particular circumstances. This newsletter was written, designed and produced by Samuel Li for the benefit of Samuel who is Advisors at : SamuelConsultant.com is a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this article comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities.

Mutual Funds, approved exempt market products and/or exchange traded funds are offered through Investia Financial Services Inc.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. Investia is not liable and/or responsible for any non mutual fund related business and/or services.

Samuel Li

Hi, I'm Samuel Li. I started my financial advisory practice in 2005, assisting Canadians in growing their long-term wealth while protecting their assets. One area I specialize in is servicing families with disabilities. If you'd like to explore how I can assist you, feel free to email me at Samuel@SamuelConsultant.com

Recent Posts