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.
“Dear Samuel, thank you for your ongoing email updates. They are very informative and I enjoy reading them. I have a question, my son has a RDSP account, but according to his current situation, I’m afraid he may not live past 5 years. I remember you talked about there is a 10 years claw back rule for the grants and bonds. I wonder what options do I have now?“
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:
Quote from Canada.ca – What is a specified disability savings plan (SDSP)
- 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
Here’s an infographic with more details regarding shortened life and RDSPs.
Hope this would be helpful to your family”
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Sources:
- Canada.ca
- What is specified disability savings plan (SDSP)? (source)
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