Financial planning for a child deemed incompetent is needed to ensure a smooth transition and inheritance through succession law, says Ottawa disabilities and estate planning lawyer Kenneth Pope.
It's a layered and at times confusing process where legal guidance is suggested, especially for family members already tasked with caring for a dependent, Pope tells AdvocateDaily.com.
Parents can begin building a nest egg for their dependent child through the Registered Disability Savings Plan (RDSP). But to secure the proper path to bequeath funds requires the writing of wills, powers of attorney and assignment of guardianship, Pope says.
"I try to deliver peace of mind to my clients," says the principal of Kenneth C. Pope Law.
"Where the child is competent, we would do wills. When they’re not, we follow a different protocol," Pope says.
The client must be eligible for the Disability Tax Credit before opening an RDSP account. If the child is a minor, the parent should also apply for the Canada Child Tax Benefit, he adds.
There is no limit on the amount that can be contributed to an RDSP in a given year. The federal government offers $3,500 annually to families earning less than $90,563, which includes everyone on ODSP, depending on family contributions. However, the overall lifetime cap is currently $200,000, but it excludes other contributions and bonds paid into the plan, Pope explains.
A Canada Disability Savings Bond worth up to $1,000 is available for those earning $21,287 or less a year and, in this province, the Ontario Disability Savings Plan allows for further assistance based on income.
Pope uses an example of a $120,000 contribution that eventually adds up to about $500,000 — assuming an annual growth rate of five per cent — by the time the child withdraws funds at age 60.
"People should have wills and powers of attorney, although only 50 per cent of the population has a will," Pope says. "Those who have a child with special needs should also have a Henson Trust and only a very small proportion have that.
"That's a keystone of our service," he says.
Pope says the next focus is on powers of attorney.
"You look at whether the child has the minimal level of competence to assign powers of attorney for property and personal care.
"If they're competent, they can write a will, but RDSPs can't be designated in the same way as other insurance assets.
"If the child is deemed to be not competent, they can't do a will," he says. "If he or she predeceases the parents, who in most cases have made the contributions, by intestacy, the money would be passed by succession law.
"If there are surviving siblings, a guardianship application can be made to have one designated as the child's legal guardian. That allows them to manage pensions and the RDSP. Be aware, though, that when the child dies these assets can't be accessed until someone applies for probate," he says.
The process is at times unnecessarily complicated for those deemed legally incompetent and dependent, Pope says, noting that RDSPs were introduced in 2008 and were initially limited to those considered competent unless someone was their legal guardian, which then involved a legal guardianship application.
At that time, if a person was deemed incompetent, there was "no power of attorney and there was no automatic legal guardianship," he says. "Parents assumed they were legal guardians but that’s not the case.
"A couple of years later, the government decided they would allow the parent of an incompetent adult or child to be the account holder of an RDSP," he says. "This was progress.
"Since 2009, our firm has been doing more legal guardianship applications so these accounts could be set up," he says. "It's an unfortunate thing to miss out on possibly $4,500 a year."
Pope says a child can potentially access funds from another source if a parent holds a defined benefit pension plan, such as the Teachers' Pension Plan, OMERS or CAAT. If the parent dies, the disabled child is eligible for the dependent survivor's pension.
"If you are a teacher who retires with a $60,000 pension and have an adult dependent child who has, for example, autism, the child stands to receive 50 per cent of your pension when you die," he explains.
But the child requires someone to oversee the pension income, Pope says.
"Suppose he is in a supported living environment and this pension is his money," he says. "Somebody has to be his legal representative, either being his power of attorney or acting as his legal guardian. They then have to apply for the pension to receive and manage it."
In many cases, the child’s needs are not significant when they live in a care facility, which would leave a large portion of the pension accumulating in an account, Pope says.
"He dies intestate and the power of attorney ends.
"Again someone has to apply to become the administrator of his estate and then by succession law, they receive that inheritance," Pope says. "That child could have an accumulated RDSP and an unspent pension, and there may be a significant amount left when they die."
If the RDSP is substantial, the parents or a sibling(s) must file a probate application with a court to become the administrator of the estate, Pope says.
The line of succession usually begins with the parents, then siblings, and then aunts and uncles, but Pope says in many cases, it ends up with cousins, he says
"Quite often, these cousins have had nothing to do with the child, yet they're going to get a share of a sizeable amount of money," Pope says.