I recently had a meeting with a parent whose daughter is diagnosed with pro-longed disabilities. Since the daughter is incapable of making her own financial decision, her father becomes the account holder of her Registered Disability Savings Plan, while the daughter is setup to be the beneficiary.
During our discussion, the father raised up two very good questions. What would happen upon the death of the account holder? beneficiary?
Upon the death of the RDSP account holder:
The next person who is appointed to act as the beneficiary’s legal guardian could continue to manage the account. In this scenario, all the disability savings grants & bonds, contributions and growth will remain in the account, the only change is the account holder’s name.
Upon the death of the RDSP beneficiary:
In the case the beneficiary dies, the RDSP account will go into the beneficiary’s estate. Grants & bonds that are not matured (10 years clawback rule) will have to repay back to the government. Government grants and bonds, growth will be taxed when going into estate, but not the contribution.
Below is a quotation from the CRA:
“What happens if the beneficiary dies? The RDSP must be closed and all amounts remaining in the plan must be paid out to the beneficiary’s estate and the plan terminated, by December 31 following the calendar year in which the beneficiary dies. Any funds remaining in the RDSP, after any required repayment of government grants and bonds, will be paid to the estate. If a DAP had been made and the beneficiary is deceased, the taxable part of the DAP must be included in the income of the beneficiary’s estate in the tax year in which the payment is made.”
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