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:
When the RDSP account holder passes and the beneficiary is a minor, the surviving parent can step in as the new account holder. If there is no surviving parent, then someone would need to go to court and be appointed as the beneficiary’s legal representative and they could then become the account holder. The next person who is appointed to act as the beneficiary’s legal guardian could continue to manage the account.
Similarly, if the disabled beneficiary is an adult, but not contractually competent to enter into a plan, a qualifying person, who is legally authorized to act for the beneficiary, under the provincial legislation, can become the holder.
Of course, if the disabled adult beneficiary has the capacity to manage their own finance, then they can become the RDSP account holder themselves.
Nevertheless, in all the above scenarios, the disability savings grants & bonds, contributions and growth can 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 claw back 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.
“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.”
Quote from Government of Canada – Cessation of disability or death of a beneficiary
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Source:
- Canada.ca – Registered Disability Savings Plan (source)