Planning for a child with special needs 

By Jonathan Got | December 27, 2024 | Last updated on December 24, 2024
4 min read
Toddler with down syndrome learning to walk supported by his mother
iStock / SolStock

Advisors say planning for a family with a disabled child involves setting up the right life insurance for relatives, a Henson trust, registered accounts and taking advantage of provincial and federal programs. 

“You want to ensure that the special needs individual is properly cared for when the parents are no longer here,” said Joseph Trozzo, vice-president of national investment sales and MGA at Equitable Life in Toronto.

Trozzo has a son with autism, who has played soccer in the Special Olympics. 

Insurance 

Parents can buy a permanent, joint last-to-die life policy on themselves to fund a Henson trust and term insurance to protect income, said Ron Malis, a financial advisor with Reegan Financial in Toronto who serves clients living with disabilities. 

Another option is to explore buying life insurance on the grandparents’ lives. “It takes a village, especially when you have a special needs person in your life,” Trozzo said. 

Henson trust 

Assets held in a Henson trust for the benefit of a person living with a disability aren’t considered as belonging to them, and won’t put their eligibility for asset-tested government benefits at risk. 

Almost anything can go into the trust. For example, the parents can put a second property in to exempt it from capital gains tax when they die, Malis said. 

Advisors should talk to their clients about a Henson trust as soon as possible. It’s only allowed if the testator includes it in their will before they die, Malis said. They should also pick reliable trustees and connect them with professionals like advisors and accountants. 

Parents can name more than one trustee as well as backup trustees to a Henson trust, said Guerlane Noël, assistant vice-president of tax and estate planning at Mackenzie Investments in Montreal. For example, one trustee could have financial expertise, while the other could have a health-care background. 

Disability tax credit 

The disability tax credit (DTC) is a non-refundable tax credit for people with severe and prolonged disabilities that last at least 12 months. Applicants need a medical professional to complete a form, and qualification can be either temporary or permanent. 

Apart from the tax benefit, the DTC certificate is key to qualifying for several federal programs, such as the registered disability savings plan (RDSP) or the Canada Disability Benefit, which will begin distributing up to $200 a month to eligible beneficiaries in July 2025. 

Registered disability savings plan 

There is no annual limit on contributions to an RDSP, which has a lifetime limit of $200,000. An RDSP can also get matching grants every year. Families earning under the specified income threshold can get up to $70,000 in grants with $30,000 of contributions over 20 years.  

“An RDSP is almost always a no-brainer,” Malis said. 

If there is sufficient contribution room, families can transfer their grandparents’ registered retirement income fund (RRIF) into the RDSP, Noël said. This will defer taxes on the RRIF, so it’s only due at the time of withdrawal from the RDSP. 

Registered education savings plan 

Families with more than one child can set up a family registered education savings plan (RESP). If the special needs child doesn’t pursue post-secondary education, their siblings can use the funds, Trozzo said. 

“You don’t want to put limitations on [the special needs child], but they’re going to be challenged to go to post-secondary education,” he added. 

Any unused individual RESP funds can be transferred into an RDSP, but any government contributions to the RESP must be returned first, Malis said. 

Ontario Disability Support Program

In addition to federal schemes, provincial disability support programs can also help. For example, the Ontario Disability Support Program (ODSP) pays up to $1,368 per month for a single person. 

Although benefits could be paused or clawed back if the recipients exceeds prescribed asset or income limits, there are exemptions. For the ODSP, anything held in a Henson trust and up to $100,000 of life insurance products are exempt as chargeable assets, and payments from an RDSP account aren’t considered chargeable income, Malis said. 

If a special needs child is due to receive an inheritance that could make them ineligible for ODSP, the assets could be deposited into an RDSP or funnelled into a segregated fund, Malis said. Segregated fund withdrawals are chargeable income, however. 

The financial handover 

A special needs child can outlive their parents, so parents should involve the next generation of caretakers early in the process. For example, they could be Henson trust trustees or the child’s siblings, Trozzo said. 

They should pass on information such as medical care instructions, the doctor’s name and specific details from the last will and testament to ensure the handover is as seamless as possible.

Trozzo’s son has a grilled cheese sandwich daily but won’t eat it unless it’s cut a specific way. “If that information is not captured … you’re going to be scratching your head thinking, ‘why isn’t he eating his grilled cheese anymore?’” he said. 

The new caretakers should also participate in financial planning sessions with the financial advisor to fully understand the strategy behind using the different registered accounts and government programs, Trozzo said.  

Proper financial planning can help ease parents’ anxiety, Trozzo said. “God forbid if you’re not here or your spouse isn’t here, you have a plan in place. … When you go to bed at night, you can put your head on the pillow and say, ‘I know [that] financially, my special needs child is going to be OK.’” 

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Jonathan Got

Jonathan Got is a reporter with Advisor.ca and its sister publication, Investment Executive. Reach him at jonathan@newcom.ca.