Financial planning for special needs children

How to support their care for a lifetime.

Most families are concerned about planning for their children’s financial futures, but for families with special needs children, financial planning strategies have a different and often more complex dimension. The cost of supporting an individual with special needs adds up quickly – from therapies, medical equipment and special programs to caregiver support and transportation. While the estimated

annual cost of raising a child in Canada is nearly $14,000, the cost for families dealing with disability can be much higher.[1] According to Easter Seals Canada, the annual cost of caring for a child with a severe disability can be more than $40,000.[2]

Consider the statistics, and the challenges that many families face are understandable. An estimated one in seven Canadians has a disability[3] and according to Statistics Canada, only half of Canadian adults with a disability have a job, and only 26 per cent of those with a severe disability are employed.[4] Families with special needs children have the added challenges of developing strategies to provide financial support throughout the child’s life – including when parents may no longer be able to provide daily care.

Government benefits and tax breaks

There is government assistance to help support families caring for a special needs child. The first step is to apply for the Disability Tax Credit (DTC) by submitting Form T2201 (Disability Tax Credit Certificate) to the Canada Revenue Agency. It can reduce the income tax payable for the disabled individual – or where a child or other dependant doesn’t have taxable income, a parent or other relative can claim the DTC in certain conditions. Beyond the simple tax credit, qualifying for the DTC can open the door for other federal, provincial or territorial benefits as well.

There are other tax credits to take advantage of, including the Canada Caregiver Credit or medical costs and deductions for child care expenses. You may also be eligible for the Child Disability Benefit, a monthly tax-free benefit for families caring for a child under 18 who is eligible for the DTC.

The Registered Disability Savings Plan (RDSP) is also available, though only a fraction of eligible Canadians have set one up since its inception in 2008.[5] This tax-deferred savings vehicle allows Canadians under age 60 who qualify for the DTC to contribute up to a maximum of $200,000 – and

contributions can be made by anyone. If the beneficiary is under 18 years of age, the RDSP can be established by the parent. An RDSP can also be established for an adult, if their contractual competency to enter into a plan is in doubt, by a qualifying person who is legally authorized to act for the beneficiary. Savings in an RDSP grow tax-free and, depending on the age and adjusted family net income of the beneficiary, are eligible for government benefits such as the Canada Disability Savings Grant and the Canada Disability Savings Bond – which can add up to $90,000 over the lifetime of the RDSP.

Put an estate plan in place

Your estate plan should begin with frank and open family discussions about how to care for loved ones after you’re gone. Creating a life plan will help to ensure you and your family have really thought through all your child’s future needs. This document provides caregivers and/or trustees with detailed information describing the kind of care and lifestyle that you wish to continue for your child after you’re gone.

Trusts may also be an option, but their implications can vary significantly from province to province. In many provinces a Henson trust, which is an absolute discretionary trust, may be helpful.[6] With this kind of trust, you leave your estate, or part of your estate, in trust for your child, but the trustee(s) can withhold or spend the income and capital as they see fit to best serve your child’s interests. The estate contents would not legally be owned by the child, and therefore, he or she would still qualify for any ongoing government benefits. Speak with an advisor or lawyer to fully understand how trusts work in your province.

Help protect your family with insurance

The purchase of life insurance is a good idea for any new parent, but is particularly important in the case of a special needs child. The younger you are when it’s purchased, the lower the premiums are likely to be. Upon your death, you can elect to pay out your life insurance directly into an RDSP or a Henson trust. Critical illness and disability insurance for caregivers is also an important consideration. If you are diagnosed with an illness or become disabled and are unable to work and/or care for your child, you’ll want some insurance to help fill your income gap.

Plan for expenses

Caring for a special needs child has its unique rewards and challenges, and consideration is needed for potential short- and long-term expenses. Families may be required to pay out of pocket for a number of requirements from adaptive clothing, specialized strollers, car seats and lift equipment to assistive technology, specialized therapies, home modifications and transportation vehicles. An advisor can help you navigate the best way to handle immediate expenses, while setting up a longer-term investment strategy to cover those out-of-pocket costs further down the road.

Talk to the experts

Putting a financial plan in place to help support your child – for now and in the future – will help put your mind at ease. Speak to your advisor about the financial programs that can help you and your family.

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[1] www.moneysense.ca/save/financial-planning/the-real-cost-of-raising-a-child

[2] easterseals.ca/english/wp-content/uploads/2016/12/Disability-in-Canada-Facts-Figures.pdf

[3] www.thestar.com/news/canada/2007/12/03/1_in_7_canadians_live_with_disability_statscan.html

[4] Statistics Canada, “Study: Persons with Disabilities and Employment,” The Daily, December 3, 2014, www.statcan.gc.ca/daily-quotidien/141203/dq141203a-eng.htm (accessed June 26, 2018)

[5] insurance-journal.ca/article/disability-complicates-financial-planning-process

[6] www.investmentexecutive.com/newspaper_/building-your-business-newspaper/the-ins-and-outs-of-a-henson-trust/