December Newsletter

Wed, 7 Dec 2011 12:02:40 -0500

A Note From Ken

I’d like to wish an early and very merry Merry Christmas to everyone. Before we know it the tree will be up, down, out the door, we’ll wake up to New Years Day and it will be 2012!

This year has gone quickly, and my office is the midst of finishing off the last minute tax credit back filings for 2011, getting the Will and trusts in place for families who are planning their Christmas break vacations, and getting our own Christmas shopping done.

For those of you who still don’t have Wills or Henson trust arrangements in place, I may sound like a Grinch but I suggest you put this on your list of New Year’s resolutions.

Best wishes to each and everyone.

Ken Pope

Holiday Office Hours
Friday December 23rd Open
Monday December 26th Closed
Tuesday December 27th Closed
Wednesday December 28th Closed
December 29th & 30th Open
Monday January 2nd Open

Attention
All OMERS, OPG, and OTPP Pensioners or Future Pensioners.

Information for Pensioners with Adult Children with Disabilities or Special Needs

Re: Did you know that your provincial pension can pass down to your Adult Dependent Child with a Disability when you are gone, after it has gone first to your spouse or if you have no surviving spouse!

OTPP (Teachers) Pensions:
If you are a teacher entitled to a pension, or already receiving a pension that commenced in 1990 or after, and who has an adult financially dependent child 18 years or older with a disability, your child may qualify to receive half of your pension amount once you are gone. Arrangements can be made so that your child will receive the survivor pension for life, as long as they qualify. The child’s disability is evaluated at the time of your death; a preliminary determination can be made upon submission of required documents to determine eligibility while you are alive, followed by a formal application at the time of your death.
When the pensioner dies after retirement the pension can be received by your disabled and financially dependent child in an amount of 50-75% of your pension.
Please click here to read more of this article:

Government plan makes saving easier for people with disabilities

(The following is an article by Linda Crabtree for St. Catharines ‘The Standard’, she interviewed Ken in early December.)

Billed as the best government program no one has ever heard of, the Registered Disability Savings Program is a good way for parents to invest in the future of a disabled child or a disabled adult to save for an easier old age.
Click here to read the whole article

November, 2011 News Letter

Thu, 3 Nov 2011 00:00:00 -0400

November is a time to look back , to remember and to say thank you. Let us all take the time to do just that. Please note that the office will be closed for the morning of November 11. We will be opening at 12:30.

This month at the office, sees us all very busy. We are in the process of contacting all past clients with wills from 1980 onwards. If you have not heard from us yet , please contact us, I strongly urge all my clients to update your Will and to make sure that I have current contact information.

This week brought in a number of interesting developments . One being the Government of Canada has launched a review of the Registered Disability savings Plan (RDSP). Please make note of the closing date for making comments is December 16, 2011.
In response to this news release, Garry Marr of The Financial Post wrote an interesting and informative article, you can find the link to this and my comments on my website under News at www.kpopelaw.com

Our live webcast back in late September was a huge success! Many thanks to OTN and the Community Network of Specialized Care for hosting that for us. For those of you who haven’t see the webcast , it is archived here: webcast

We are in the midst of embracing social media here at the office, so I would like to encourage anyone with a Twitter account to follow me @kpopelaw and we have a Facebook page as well...Follow us, like us, send us your comments!

We are also working on bringing you more live webcasts. We hope , in the next few weeks , to have this feature set up and we will let you know about any on line events. They will be archived and stored in the website for viewing at any time.

The year is quickly coming to a close. There is just enough time to back file for the Disability tax credit and the Care Giver tax credit. If you fill out the assessment form and submit to our office, we can get that process started. by doing this you ensure that you capture the maximum amount of money , going back to 2001. In january that changes to 2002. You could potentially be recapturing more than $22,00.00 in many cases. Being approved for the Disability tax credit also allows your family member to open an RDSP, with all the financial advantages that brings.
I hope that everyone has a safe and happy November, if there are any comments or suggestions you have please feel free to contact me kpope@kpopelaw.ca
sincerely
Ken Pope

Helping families do more with their money

Tue, 30 Aug 2011 10:30:23 -0400

To qualify for the RDSP, Canada Revenue Agency (CRA) must confirm that a child fits criteria for being ‘markedly restricted’ in the activities of daily living in one or more ways.
by KENNETH POPE LLB.AND PETER J. MERRICK CFP

Among the many considerations of parents and grandparents of children with severe physical and/or cognitive disabilities, perhaps one of the most critical is how best to ensure their children’s financial security when they are no longer alive to provide support.

The recent federal Budget has proposed the creation of a Registered Disability Saving Plan (RDSP) commencing in 2008. This plan, which is very similar to the already established RESP,(Registered Education Savings Plan), will allow contributions to the RDSP by family and friends of a person with marked disabilities.

While contributions will not be tax deductible, they will yield both modest and major matching contributions by the federal government. The RDSP will only be available to families whose child qualifies for the ‘disability tax credit’ or disability amount in the Income Tax Act. To qualify, Canada Revenue Agency (CRA) must confirm that a child fits criteria for being ‘markedly restricted’ in the activities of daily living in one or more ways.

Lifetime RDSP contributions will have a limit of $200,000. Capital contributions withdrawn from the RDSP will not be taxed, as the tax has already been paid on these sums by the parent who contributes the money. Accumulated investment income will be taxable in the hands of the beneficiary as it is withdrawn. Properly planned, this will result in not just deferral of taxes but also non-taxation, due to the use of the personal exemption and disability tax credits available to the person with the disability.

The following is an example of sample family contributions together with Canada Disability Savings Grants:

Family Net Income and contributions compared to annual CDS grants:

Up to $74,357

First $500 - 300%
(maximum $1500)

Next $1000 - 200%
(maximum $2000)

$1,500 contributed
generates $3,500

CDSG Totals $,5000

Over $74,357

First $1000 - 100%
(maximum $1000)

$1,000 contributed
generates $1000

CDSG Totals $2,000

Ottawa will pay the beneficiary a Canadian Disability Savings Grant (CDSG) as long as family contributions are made until the end of the year in which the beneficiary turns 49. There will be a maximum life- time CDSG limit of $70,000. Family income ranges and corresponding federal contributions will be indexed to 2008 when the RDSP begins.

Ottawa will also provide a modest Canada Disability Bond, much like the RESP Canada Learning Bond, for very low-income households.
Monies can be contributed to the RDSP until the end of the year in which the beneficiary turns 59. Payments to the beneficiary must begin when the beneficiary turns 60. There will be limitations on how much can be removed each year, which will significantly hamper using the funds for larger necessary purchases such as homes or accessible vans. Present information suggests that the annual maximum withdrawal limit will be based on the recipient’s life expectancy, and the fair market value of the RDSP, although details have not yet been determined.

To ensure that RDSP payments do not reduce federal income-tested benefits, amounts withdrawn from an RDSP will not be taken into account for the purpose of calculating
credit. In addition, amounts paid out of the RDSP will not reduce Old Age Security or Employment Insurance benefits.

The potential effect of this income on federal and provincial income supplements, or Guaranteed Annual
Income Supplement (GAINS), is not known at this time. If the income were treated as other income such as CPP, or investment income, it would result in a 50% clawback (reduction) on GAINS for every dollar of RDSP income. This would of course be contrary to the intent of the plan.

The bigger question is whether provincial disability benefits, which also provide income supports for persons with disabilities between the age of 18 and 65, would be offset by RDSP income. Since the RDSP arrangements are federal, there is no guarantee that withdrawals from the RDSP would not offset provin- cial benefits dollar for dollar.

The ideal would be that payments from the plan would supplement - not reduce - income support provid- ed under these programs, at least until the level of income support plus RDSP payments would exceed the Low Income Cut Off as defined in each province and territory.

In the case where the beneficiary dies or ceases to qualify for the RDSP (as in the rare case, for example, where an individual is cured of his or her disability) any CDSG or CDSB funded to the plan within the 10 years preceding the death (or cure) and the income earned on such amounts, will have to be repaid. Amounts left in the RDSP after repayment of these sums must be included in the estate of the beneficiary.

Planning For The Future Henson Trusts are Now Better than Ever

Tue, 9 Aug 2011 10:40:42 -0400

A Henson trust, which makes it possible for a person on provincial disability benefits to inherit an estate without losing benefits, just got a lot better.
But before telling you about the improvement, let's back up and review what a Henson trust is.
Leonard Henson left his estate in trust for his daughter, Audrey, who was receiving disability benefits in Ontario. The province tried to cut off her benefits, but in 1989, the Ontario Court of Appeal ruled in her favor.
The precedent was set. Henson had left the estate in a trust over which Audrey had no control. The estate was in the hands of a trustee with absolute discretion as to its use, and Audrey had no legal vested interest in the trust. Those provisions were key.
The use of a Henson trust is an advantageous way of insuring that an adult child receiving benefits can have something extra, to supplement the sparse standard of living that social assistance provides. Parents ordinarily assist their offspring with the little extras while they are able, but the Henson trust makes it possible to continue this help beyond the grave.
While we are inclined to think of trusts as instruments used only by the wealthy, they can in fact be used to assist families of relatively modest means. Many, if not most, families will find the cost of setting up a Henson trust to be within their means. However, the assistance of someone with expertise is essential, as the wording of the will setting up the trust is crucial in order to avoid disallowance.
So what, then, is the new wrinkle that makes the Henson even better?
The federal government is about to adopt a new provision in the tax system making it possible to roll over an RRSP or RRIF into a Henson trust. As a consequence, none of the money in the RRSP or RRIF will be lost to taxation in the process.
If you already have a Henson trust in your will, you may want to revise it to take advantage of the new situation and to arrange for the roll-over of your RRSP or RRIF.
Let's take an example to look at the savings that can occur with the roll-over. Bill Carpenter earns $38,000 a year. On New Year's Eve, he dies suddenly of a heart attack at age 60. He has a son who has significant rheumatoid arthritis and receives provincial disability benefits. There is an RRSP worth $100,000.
With a Henson trust, there is no tax on the $100,000. However, before this change in the tax system, or if the RRSP was not rolled over into the trust, here's what would have happened. (While tax rates vary somewhat from province to province, they do not vary significantly, so we will use rough Ontario figures here for the sake of simplicity.) On the $38,000 he earned, the estate would be taxed at 22%. On the first $21,000 of the estate, the tax, at 33%, is $7,000. For the next $38,000, the rate is 44%, or some $17,000. Of the remaining $41,000, half is taken by taxes, with the total take by government from the RRSP, some $44,000. The Henson trust avoids that steep loss to taxes.
If the higher earner in the family dies first and his or her spouse has a satisfactory pension and no real need for the spousal RRSP, it may be advantageous to leave the RRSP to a Henson trust rather than to the surviving spouse, for tax purposes. The inheritance could otherwise put the surviving spouse in a higher tax bracket. The surviving spouse would likely be the initial trustee of the trust funded by the RRSP of the spouse who predeceased.
(All teachers and OMERS and other municipal and provincial government pensioners may wish to check their pension plan. Many have pensions that go first to their spouse and then provide for a “dependent survivor” pension, which includes their dependant adult child receiving provincial disability benefits. This may well have a negative effect on the child's disability benefits and should be taken into account for estate planning purposes.)
With the assets, the trustee can purchase an annuity solely for the benefit of the person with a disability. The annuity could be designed to continue providing income up to age 90, or to some lower age, and the trust would pay tax on the benefits from the annuity at the rate of 22% for up to $38,000 a year. The monthly payout on an annuity will vary with changes in the interest rate, but a 20-year annuity on $100,000 should yield well in excess of $600 a month.
Using the RRSP or RRIF in the way described here requires some careful planning, as the whole instrument must be rolled over into the trust. It is an all-or-nothing affair.
But suppose a person has other children to whom he wants to leave something?
The solution may be to have more than one RRSP or RRIF. That way, one or more of them can be rolled over while still leaving other resources to distribute in the will. Suppose that there are two children, one receiving provincial disability benefits and the other not. There is a house worth $200,000 and an RRSP of equal value. Before the new provision in the tax system, the typical estate-planning approach might be to leave everything to the surviving spouse and then to the two children equally. With the upcoming change, it may well be desirable to reconsider. The RRSP might well be rolled over to the child with a disability, with the resulting tax savings. The house could be left first to the surviving spouse and then to the other child.
An additional thought on estate planning: It may make sense to leave the trust in place for any grandchildren, as there are disabilities that are inherited, some of which show up only in the late teens or early adulthood.
The federal government ' s acceptance of the roll-over of RRSPs and RRIFs into Henson trusts is a clear recognition of their legitimacy, but while settled law in Ontario, their status is not necessarily adjudicated in all other jurisdictions.
Where Henson trusts have not been established, disability advocacy organizations should take the lead in monitoring and testing their validity. Generally speaking, this kind of trust should be a valid way of providing assistance to persons in receipt of disability benefits in all common law jurisdictions – that is, in all of Canada outside Quebec. The principle is rather simple: If a person has no control over the assets, then that person cannot be held to be in possession of them.
In the case of Quebec, where civil law based on the Code Napoléon is the system in force, I ordinarily set up a Henson trust with an escape clause: Should the trust be found to be incapable of accomplishing its purpose, then the assets will go to a third party. That third party (say, a brother or sister) would have the moral obligation to use the assets in the interests of the person with a disability. Of course, that eventuality would be discussed beforehand with those concerned.
None of us likes to think about death, but it is a fact of life for all of us. If we are parents of sons or daughters with disabilities, we need to include their welfare in future planning. In that planning for the future, parents should give consideration to including a Henson trust in their wills.
The above article initially appeared in the Winter 2003 edition of Abilities Magazine.

Yes, your Teacher’s Pension is transferable to a disabled child

Mon, 8 Aug 2011 15:09:44 -0400

Scenario:

I am a teacher who has been working and making contributions to my pension for 25 years. I am single and I have a 19 year old son who is disabled. I want to make sure my son is taken care of when I am gone, is my pension transferable to my son?

Yes, your Teacher’s Pension is transferable to a disabled child.

The first eligible survivor of pension benefits is the spouse, then dependent children and finally the estate.

The Teachers Pension’s definition of a disabled child is:
• A child 18 or older having been disabled without interruption since the time the child reached 18, or since the member died, whichever occurred later.
• The child must be both disabled and financially dependent on the member

What qualifies as financially dependent varies on a case-by-case basis. A variety of factors are considered such as where the child lives, what the member buys for the child, if the child works, if the member gets the child to and from appointments, etc.

The child’s disability is always determined at the time of death. A preliminary determination can be done to determine eligibility, but the formal application will be required at time of death.

To make an application for the member’s child to be considered eligible as a dependent disabled child, the following are required:
• Written statement from child, or legal guardian, consenting to the collection and use of medical and financial information
• Medical Report: Disabled Dependent on Survivor Pension, completed by applicant or guardian and the applicants doctor
• A detailed account of the type of support the child requires, both financially and personally
• A detailed account of the financial and/or personal support the child receives from the member
• A detailed account of the financial and/or personal support the child receives from other sources
• Confirmation of the child’s total annual income

The easiest way to determine what the child will actually receive is to determine the numbers. When calculating the pension amount the first calculation is a CPP reduction. This can vary but usually falls between 12 and 18%.

There are two different options for the child to collect the pension. The automatic option is 50% of the member’s pension. A higher option can be chosen, up to 75% of the member’s pensions. However, for the reduction, the age of the child and the member are compared and normally the reduction is too great and not worth the increase. The disabled financially dependent child will receive the survivor pension for life, as long as they qualify.

The Long-term Benefits of RESPs Post-secondary educational opportunities for youth with developmental disabilities

Mon, 8 Aug 2011 11:51:44 -0400

As parents, we do our best to grant on the first $500 contributed help open doors that will pro- vide our children with opportunities to continue learning. Children with developmental disabilities may not be interested in or able to attend university or college, however this does not preclude their ability to develop other interests and skills through post-secondary educational opportunities. Registered Education Savings Plans (RESPs) facilitate a method of saving for such opportunities by allowing you to earn investment income in a tax deferred environment.

Individual plans can be set up for the benefit of an individual beneficiary while family plans accept contributions for more than one beneficiary. While there is no longer a maximum annual contribution to an RESP, the maximum lifetime contribution per beneficiary cannot exceed $50,000. These contributions are not tax deductible. The Federal government provides a grant of 20 cents for each dollar con- tributed, up to a maximum of $500 each year and a lifetime limit of $7,200. These Canada Education Savings Grants (CESG) are only paid on the first $2,500 contributed each year and only if a contribution is made. A large lump sum contribution might compro- mise these grants, but the interest accumulating tax free on a lump sum of $50,000 (presuming for example that grandparents decided to endow this amount as an “early” inheritance) would generate much more tax-free growth than the grants provide. This option may be useful for some families.

Recently the Federal government announced that there will be an
will be 40% for families with incomes below $37,000 and 30% for families with incomes between $37,000 and $74,000. Contributions can be made for a period of 21 years.
An RESP must be terminated by the end of the year that includes the 25th anniversary of the plan.
Disbursing RESP funds: Which schools and programs apply?
In order to disburse the funds from an RESP, a facility must be deemed a “designated educational institution” with a “qualifying educational pro- gram” under the Canada Student Loans plan. Alternatively, it can be certified by the Minister of Human Resources as an educational institution that provides courses related to the development or improvement of skills in a given occupation or vocation.
A “qualifying educational program” cannot span less than three consecutive weeks. Full-time students must spend at least 10 hours weekly on program-related courses or work, while part-time students must have least 12 hours monthly of their will not have much other taxable simple misapplication of funds for time. The in-class portion of a income and will be eligible for the wrong use. recognized apprenticeship can also tuition and education tax credits, count as time spent. Part-time therefore he or she will have little
If your child chooses students can access up to $2,500 of RESP funds per 13-week semester, or greater amounts if approved by plan administrators.
While a variety of courses offered at post-secondary schools currently meet these criteria, curricula can be created specifically to meet the special needs of adult children. For example, a group of exceptional families in Ottawa recently arranged a series of approved continuing education classes designed for their 25 children at Algonquin College in Ontario, all of whom had graduated high school at age 21.
In order to make post-secondary studies more attainable to exceptional people, students with disa- bilities now have the options of attending school on a part-time basis, accessing distance education courses through correspondence, participating in on-line learning opportunities, or studying via a variety of apprenticeship programs.

Once the money from the RESP has been distributed to the beneficiary, the income earned in the plan plus the amount of federal contributions are taxed as income of the beneficiary. As a student, your child likely
to pay in taxes.
RESP funds should only be used to pay for education-related expenses such as tuition, books and tutors. If a residential or meal plan comprises a component of your child’s program, it is very important that the plan not be paid with RESP funds. Similarly, RESP money should not be used to pay for things that are covered by provincial disability benefits, such as shelter, clothes or food. Separate paperwork should be kept in order, otherwise there may be a deemed overpayment of provincial disability benefits and a surprise claw back of “overpayments” due to not to pursue post- secondary education
Parents have always had the assurance that if their child decides not to pursue post-secondary education, their capital contributions to the savings plan would be returned to them tax-free. They now have the additional assurance that up to $50,000 of the income that accumulates in the RESP can be transferred into their RRSPs, to the extent that they have unused contribution room available.
Alternatively, parents can withdraw the RESP income and pay tax at their marginal rate plus an additional 20%, to offset the interest earned on the grant. The grant portion is returned to the federal government.
It is now also possible to roll over or transfer the educational assistance payments, without tax implications, to another family member, so long as the beneficiary is under 21 years of age and is related by blood or adoption. In the case of an RESP in the family plan format, educational assistance payments can be paid out to another family member as long as the same qualifying criteria are followed.

Tax Savings For The Disabled

Tue, 11 Nov 2008 00:00:00 -0500

Families with a member with disabilities need to know how to take advantage of provisions of the taxation system that apply to them. I estimate that one in eight families could be affected by these provisions, and if yours is one, you need special tax planning advice. I will explain how you can save thousands of dollars by taking advantage of special benefits that the government has put in place for families with a member with special needs.

There are three lines on the tax form that we will consider here, lines 315, 316, and 318. Canada Revenue Agency, has a useful, but somewhat less than revealing booklet, “Information Concerning People with Disabilities”. The booklet does not tell the whole story and is, in part, misleading in the narrow interpretation it gives. More about this problem shortly. Let’s start with line 315.

Caregiver Tax Credit

Line 315, the caregiver amount, comes into effect when there is a person, older that 18 years of age, who resides with you at some point during the year,and is dependant on you, due to mental or physical infirmity. The dependant needs to have income of less than $14,000.00 per year for you to receive the maximun tax credit. As well, the person must be your child or grandchild or you or your spouse or your common-law partner’s brother, sister, niece, nephew, aunt, uncle, parent, or grandparent.

If the person was with you any time during the year, you are eligible for the amount. The eligibility for the caregiver amount is effected by the dependant’s net income and conflicts with the use of line 306. Only one of these lines can be used and in most family situations , line 306 gives no real benefit. If a child over 18 receives Ontario Disability Support Program payments or a senior gets the Guaranteed Income Supplement, the persons modest income will not erode the tax credit used by the caregiver, but the same modest income will completely erode the line 306 tax credit.

You Can Claim for 10 Previous Years

What the booklet does not tell you is that, if you failed to apply for the caregiver amount, you may backfile, going back as far as 10 prior years, presuming the person with disabilities was over 18 for all of those years. With the taxation system as complicated as it is, it is good to know that you have another kick at the can. It doesn’t have to be Tax time....any time is the time to revise past omissions or errors. Using line 315 should put about $600 a year in your pocket.

Disability Tax Credit

Now we turn to line 316, the disability amount. In order to take advantage of this deduction, the person must be blind, have a severe mental or physical impairment which markedly restricts him or her in any of the “basic” activities of daily living (known in the health field as ADL), or requires life-sustaining therapy (e.g., kidney dialysis) at least three times a week for an average of at least 14 hours a week for at least a year. The blindness or inability to carry out activities of daily living must be “prolonged”. Currently, line 316 will reduce income taxes by $1,600 for a person over 18. If the person is under 18, an additional amount can be claimed.Reducing taxes by approximately $2200.00 per year. When a person has little or no taxable income,such as a person receiving ODSP or benefits, the tax credit, personally does them no favor, because they do not pay income taxes. The tax credit can be transferred to a tax paying family member, who helps them , to some extent with food, shelter or clothing. How? Just keep reading. We’ll get there soon.

The Disability Tax Credit Certificate indicates who can complete the document: physicians, optometrists, audiologists, occupational therapists, psychologists, and speech-language pathologists. It also lists the ADLs: walking, speaking, thinking and remembering, hearing, feeding and dressing,and elimination.
Courts Expand Eligibility

The courts have broadened the concept of ADL in cases brought by taxpayers. For example, the ability to feed oneself has been expanded to include the ability to prepare food. Ability to dress has been understood to include ability to do laundry. The “Information Concerning People with Disabilities” tells us nothing about this wider eligibility. Thus, if you have a disabled dependant, you would be well advised to get legal advice about how that person’s disabilities might fit, not just the narrow categories spelled out in the Certificate, but the wider understanding elucidated in court decisions.

Recapture $16,000 to $20,000!

Finally, let us turn to line 318. The amount claimed on line 316 on the dependant’s tax return can be transferred to a family member who pays income tax. The transfered amount is entered on line 318 of their tax return. This provision is used when the disabled person does not have taxable income sufficient to take advantage of the tax credit. This can be a major benefit to any family with an eligible member with special needs.In a maximum recapture situation the total recapture is approximately $16,000.00 to $22,000.00.
Because of the complex nature of the disability tax rules and the incomplete information provided by the Canada Revenue Agency publications and forms, it would be wise to consult a knowledgeable accountant or lawyer specializing in disability matters, especially before making the first disability-related claim.
Registered Disability Savings Plan (RDSP)

The best news when a person has been approved for the disability Tax credit they can then have a RDSP. If the person is 18 years old and on ODSP and if they or other family members contribute $1500.00 each year to the plan, the federal government will contribute $4500.00 each year. It is very interesting that the tax credit reduces taxes by almost the same amount each year. If these contributions are made for the maximun 20 year period and invested with a 6% return amount in the plan at the end of the period will be approximately $250,000.00! The money would continue to grow until it can be drawn upon at age 60. people with significant disabilities will become senior citizens with sizeable investments under the plan. For more on RDSP’s read Ken’s article he co wrote with Peter Merrick