Kenneth Pope speaks about lifetime benefits trusts for RRSPs for children.
There's a new and uniquely useful type of trust for families with children with special needs, in particular with cognitive disabilities, that is designed to receive registered funds only, such as RRIF’s and RRSP’s. And to roll this over from the deceased surviving parent to the trust on the same sort of basis as that would roll to a spouse. And the trustee then receives this money and their only choice for this one beneficiary with cognitive disabilities is to purchase a qualifying trust annuity based upon their expected lifespan.
So instead of the RRIF being designated to the estate or even to another child, because of course, the taxes are still owing by the estate; instead of on a RRIF of 1.4 million, for example, taxes owing of 700,000. If the RRIF is transferred to the lifetime benefits trust an annuity is purchased.
If the deceased is 77 and if the child is 36 with an expected further lifespan of 51 years, and if a life annuity is purchased with a guarantee period of 30 years to ensure that all the capital is returned, this would pay $49,000 a year for life or for 30 years if the child should pre-decease. Now the first $20,000 is not taxed because in this case the child has cognitive disabilities and has a personal tax credit and a disability tax credit totaling about $20,000. So the remaining $29,000 is taxed at beginning marginal rates of 22 percent, which is $6,380 a year and over a 30 year period, not at once, this totals $191,400 versus $700,000, which is a tack savings of $508,600.
Now there's very little room to argue against this type of tax and estate planning. Upon the eventual death of the beneficiary child, the trust provisions determine where the residue of this goes, which would of course typically be to these siblings or to their children. But generally it's the same distribution as would be in the Henson trust for the other parts of the estate that are set aside for the child; this is obviously a very good technique.