I’m a big advocate of financial planning. Often transitions in our lives, such as marriage, divorce and death make us look at our future and the future of our loved ones with a renewed focus.
When going through a divorce, often the negotiation is centered around the more commonly considered financial assets – the home, RRSPs and pensions. Financial planning for the childrencan be easily overlooked.
Financial planning is even more critical if you have a child with disabilities.
If you have a child with a disability such as autism, the focus isprobably centred on the immediate needs of education, health and intervention.
Their future is a world of uncertainty and unknowns.
Will they grow up to have a career, or even a job? Will they be able to master basic life skills, or need assistance?
Your separation agreement should address the long-term financial contributions for all of your children but planning for your child with disabilities is crucial.
How? Consider two things:
Government Incentives and Grants
Government Incentives: The Registered Disability Savings Plan
The Registered Disability Savings Plan (RDSP) is a long-term savings plan to help Canadians with disabilities and their families save for the future. If you have a RDSP, you may also be eligible for grants and bonds to help long-term savings.
The beneficiary, must be a Canadian resident with a Social Insurance Number (SIN);
have a long-term disability,
be eligible for the Disability Tax Credit and be
under the age of 60 (if you are 59, you must apply before the end of the calendar year in which you turned 59);
Lifetime family contribution limit of $200,000. In addition, with written permission from the RDSP holder, anyone may contribute to the RDSP.
The maximum government grant payable is $70,000. The maximum bond payable $20,000
Shared Custody: The Canada Disability Savings Program (CDSP) system will use the income level that is the most advantageous for the beneficiary to determine the grant entitlements.
After age 18, the beneficiary will most likely be the RDSP holder and their income will be used to determine grants
Parents or grandparents of a financially dependent child or grandchild with a disability can arrange for some or all of their retirement savings to be transferred (tax-free) to their Registered Disability Savings Plan (RDSP) when they pass away
If your family income is less than or equal to $95,259 (2019):
For the first $500 contributed each year to the plan, the Government will deposit $3 for every $1 of your contribution, up to $1,500 a year.
For the next $1,000, the Government will deposit $2 for every $1 you contribute, up to an additional $2,000 a year
You may catch up for previous years. The maximum grant payable in any year is $10,500
Depending on your income an annual contribution of $1500 could accumulate $4,500 in grants and bonds. That is a 300% return.
If your net income is less than $31,000 the Federal Government will put $1000 into your RDSP account;
If your net income is between $31,120-$47,630, the government will put a portion of $1,000 into your account
Once your child is 18, then their income is used to determine the grant.
The second thing to consider is time.
Consider the math:
If you start contributing $1500 a year towards your child’s RDSP when they are 10, by the time they are 30, the plan will have received its maximum grant of $70,000 and maximum bond of $20,000. Your investment of $30,000 over 20-year period is worth $120,000.
Now, consider the magic of compounding. Assuming no other contributions are made to the plan and the above contributions and grants are invested in a moderate portfolio earning 6%, by the time the beneficiary is 60 years old, the RDSP will be worth $ 1,267,666
With a little knowledge and planning, the $30,000 invested over 20 years could be worth $1,267,666
Having the assistance if a Financial Divorce Specialist as you navigate through the process can ensure that your goals and needs for your family aren’t overlooked.