1. RBC Wealth Management Services Estate Planning for Individuals with Disability Halifax Estate Planning Council September 29, 2014 Sharon Avery Estate Planning for Individuals with Disability Halifax Estate Planning Council September 29, 2014 Sharon Avery

2. *http://disability.novascotia.ca/sites/default/files/StatisticalReport_2010.pdf

4. Disability Statistics*  In 2006, an estimated 4.4 million Canadians living in households reported having a disability, an increase of over 3/4 of a million in five years.  In 2001, 12.4 percent of the Canadian population reported a disability, by 2006 this rate had increased to 14.3 percent.  Disability rate in Nova Scotia increased from 17.1 percent to 20 percent.  There were 179,100 individuals in the province who reported some form of disability.  Provinces in the East had, on average, higher disability rates than those in the West. * http://disability.novascotia.ca/sites/default/files/StatisticalReport_2010.pdf

5. Financial & Estate Planning for Disabled Individuals There is no universal definition of disability. Each government department or agency (federal, provincial, territorial, and municipal) has its own definition, based on applicable legislation and the purpose of a given program. Caring for an individual with disability and planning for their financial support can be a significant responsibility. There are financial and estate planning options available: Disability Tax Credit Child Disability Benefit Henson Trusts RDSP Lifetime Benefits Trust Qualified Trust Annuity

6. Disability Tax Credit  The disability tax credit (DTC) is a non-refundable tax credit used to reduce income tax payable on the income tax and benefit return. A person with a severe and prolonged impairment in physical or mental functions may claim the disability amount once they are eligible for the DTC.  The purpose of the DTC is to provide for greater tax equity by allowing some relief for disability costs, since these are unavoidable additional expenses that other taxpayers don’t have to face. Being eligible for the DTC can open the door to other federal, provincial, or territorial programs such as the registered disability savings plan, the working income tax benefit, and the child disability benefit.

7. Disability Tax Credit  For income tax purposes, an individual is considered disabled if they are eligible for the Disability Tax Credit (DTC).  A physician must certify that the individual suffers from a severe and prolonged mental or physical impairment that markedly restricts his or her basic activity of daily living (almost) all of the time.  The impairment must have lasted (or is reasonably expected to last) for at least 12 consecutive months – prolonged disability.  Maximum Disability Tax Credit Amount for 2013 is $7,697

8. The Disability Tax Credit and Promoters  The Disability Tax Credit Promoters Restrictions Act received Royal Assent on May 29, 2014. The Act limits fees that can be charged for helping to complete a disability tax credit request, and ensure that more money stays in the pockets of persons with disabilities and their caregivers who need it most.  The Canada Revenue Agency will hold public consultations in the coming months. You can request to be informed when the consultations will be scheduled. http://www.parl.gc.ca/LEGISinfo/BillDetails.aspx?Mode=1&billId=5814389&Language=E

9. Child Disability Benefit  The Child Disability Benefit (CDB) is a tax-free benefit for families who care for a child under age 18 who is eligible for the disability amount.  A child is eligible for the disability amount when a qualified practitioner certifies, on Form T2201, Disability Tax Credit Certificate, that the child has a severe and prolonged impairment in physical or mental functions, and the Canada Revenue Agency (CRA) approves the form.  The Child Disability Benefit (CDB) is a tax-free benefit of up to $2,650 per year ($220.83 per month) for families who care for a child under age 18 with a severe and prolonged impairment in physical or mental functions.

10. Registered Disability Savings Plan  A registered disability savings plan (RDSP) is a savings plan that is intended to help parents and others save for the long term financial security of a person who is eligible for the disability tax credit.  Incentives to save for disabled individuals  Canada Disability Savings Grant (based on family income and matching or surpassing contributions up to certain amounts – max grant is $70k)  Canada Disability Savings Bond (grant for low income individuals maximum is 20K)

11. RDSP  Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59.  Contributions that are withdrawn are not included in income for the beneficiary when they are paid out of an RDSP.  However, the Canada disability savings grant, the Canada disability savings bond, investment income earned in the plan, and rollover amounts are included in the beneficiary's income for tax purposes when they are paid out of the RDSP.

12. Who can become a beneficiary of an RDSP?  You can designate an individual as beneficiary of an RDSP if the individual: is eligible for the disability tax credit (DTC); has a valid social insurance number (SIN); is a resident in Canada when the plan is entered into; and is under the age of 60 (a plan can be opened for an individual until the end of the year in which they turn 59). The age limit does not apply when a beneficiary's RDSP is opened as a result of a transfer from the beneficiary's former RDSP.  A beneficiary can only have one RDSP at any given time, although this RDSP can have several plan holders throughout its existence, and it can have more than one plan holder at any given time.

13. RDSP – Some important facts  So Only one RDSP per individual  Must qualify for DTC  the overall lifetime limit for a particular beneficiary is $200,000 (all contributions and rollover transfers that have previously been made to any RDSP will reduce this amount).  There is no annual limit on amounts that can be contributed to an RDSP of a particular beneficiary in a given year.  However, Contributions are permitted until the end of the year in which the beneficiary turns 59.

14.  To open an RDSP, a person who qualifies to be a holder of the plan must contact a participating financial institution that offers RDSPs.  These financial institutions are known as issuers. .

15. Who can open an RDSP  Under 19 (age of majority) – a parent of the beneficiary; – a guardian, tutor, or curator of the beneficiary, or another legally authorized to act; or – a public department, agency, or institution legally authorized to act for the beneficiary.  Over age of majority & legally able to enter into a contract – RDSP can be established for such a beneficiary by the beneficiary. – If a legal parent is, at the time the plan is established, a holder of a pre–existing RDSP for the adult beneficiary, the legal parent may become the sole holder of the plan or a joint holder of the plan with the beneficiary.  Over the age of majority but legal ability to enter into a contract in doubt – a "qualifying family member" may open a plan under – Only June 29, 2012 to December 31, 2016. – These rules will not apply if an RDSP has already been opened – A "qualifying family member" if after reasonable inquiry, it is the opinion of a financial institution that offers RDSPs (RDSP issuer), that an adult individual’s ability to enter into a contract is in doubt. – A "qualifying family member" includes a spouse, common-law partner, or parent of an individual

16.  Two types of withdrawals: flexible payments (payments which can be requested anytime for example a wheelchair) or lifetime disability assistance (payments which are regularly scheduled payments based on a formula – begin at age 60)  Deceased may rollover RRSP or RRIF to financially dependent infirm child or grandchild to maximum contribution level on a tax deferred basis.  This option is discussed more later…..

17. Henson Trust  Is an absolute discretionary trust  Only amounts vesting are payments made to disabled person  No right to income of capital in trust by disabled person  Protects provincial benefits in provinces that allow such trust  Trustees may withhold income and assets from disabled beneficiary  May be testamentary or inter vivos  Not all provinces recognize Henson Trusts (such as Alberta) – some only allow with maximum amounts being held in the trust (such as New Brunswick)  Does not require that the disabled person qualifies for DTC  No maximum contribution limit  Residual beneficiaries can be named

18. RRSP or RRIF Rollovers  Ordinary rules say tax on death for full market value  Some limited exceptions (rollover or deferrals) – Spouse – Financially dependent child or grandchild If healthy children – Roll to annuity fixed until 18 years of age If disabled physically or mentally – Could rollover to RRSP or fixed term annuity – But a problem – if mentally disabled problems establishing or administering the RRSP or annuity where the prime beneficiary (the disabled person) lacked capacity to direct the RRSP

19. Transferring RRSP/RRIF on a rollover to an RDSP  The maximum rollover amount into an RDSP is $200,000. All contributions and rollover amounts made to any RDSP will reduce this amount. Grants will not be paid into the RDSP on the money you rollover.  Since July 1, 2011, for deaths occurring after March 3, 2010, the RDSP rules allow for a rollover of a deceased individual's registered retirement savings plan (RRSP) proceeds to the registered disability savings plan (RDSP) of the deceased individual's financially dependent child or grandchild with an impairment in physical or mental functions. A qualifying beneficiary is referred to as an eligible individual. These rollover rules also apply to registered retirement income fund(RRIF) proceeds, to certain lump-sum amounts paid from registered pension plans (RPPs), to the specified pension plans (SPP), or to pooled registered pension plans (PRPPs).registered retirement savings planregistered retirement income fund(RRIF)lump-sumregistered pension plans (RPPs)  As of June 28, 2012, upon the death of an annuitant of a pooled registered pension plan (PRPP), the amounts from a PRPP can be transferred into an RDSP of an infirm dependent child/grandchild or an infirm dependent child/grandchild who has attained the age of majority but is not considered contractually competent to enter into a disability savings plan. The amount of the transfer is not reported as income nor deducted by either the annuitant or the beneficiary.

20. RRSP or RRIF Rollovers for Mentally Disabled Dependent  Financially dependent child or grandchild If Mentally disabled and unable to administer RRSP on rollover – 60.011 ITA – Lifetime Benefit Trust (effective June 2013 retroactive to 1989) » Personal trust where mentally disabled spouse or dependent child or grandchild is the sole beneficiary of any income or capital of the trust. » Trustees may pay income or capital to the beneficiary but are not required to pay out all the income of the LBT to the beneficiary » Trustees are required to consider the needs of the beneficiary including comfort, care and maintenance.

21. RRSP or RRIF Rollovers for Mentally Disabled Dependent  Financially dependent children – Qualifying Trust Annuity – must be purchased by the LBT with the RRSP/RRIF proceeds coming from the deceased parent or spouse (to benefit the disabled spouse or child) – Must be for the life of the taxpayer (disabled person) with or without a guaranteed person or for a fixed term equal to 90 years minus the age of the taxpayer – If death occurs during the fixed term or guaranteed period amounts otherwise payable after the death of the taxpayer must be commuted to a single payment. – Any amounts paid out of QTA to the beneficiary of the LBT will be fully taxed to the beneficiary 56(1)(d.2) and 75.2

22. RRSP or RRIF Rollovers  Financially dependent children – Tax at death of beneficiary is at FMV of annuity at time of death and is fully taxable to the beneficiary in the year of his or her death. – Any amount remaining of the QTA after death of beneficiary (and taxes paid) is available to other beneficiaries named in LBT – In regular RRSP rollover to physically or mentally disabled person potential that no ability to bequeath the remaining proceeds on death of the disabled person if individual does not have capacity to give Will instructions (thus resulting in devolution based on intestate succession rules).

23. Example My son Ricky… Has Spina Bifida & Hydrocephalus Physically and mentally disabled Mentally capable in certain areas Neuropsychology test says his developmental age is 8 in some areas Not able to manage money Could be victimized Works fulltime as a Walmart greeter Diehard country music fan Is absolutely magnificent

24. Example My son Ricky… Qualifies for DTC Plan calls for RDSP, Henson & LBT Rollover as much as possible to RDSP – why? May look at more than “comfort, care and maintenance” also perhaps education, travel, housing (may collapse if his health changes) Still possible to rollover RRSPs to an RRSP for Ricky (previous LBT option) and Ricky MAY be able to give directions to administer the RRSP fund in his name but maybe not….so…. Rollover to LBT and QTA

25. The strategies, advice and technical content in this presentation are provided for the general guidance and benefit of the presentation participants, based on information that we believe to be accurate, but we cannot guarantee its accuracy or completeness. This presentation is not intended as nor does it constitute legal or tax advice. Participants should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. This will ensure that the particular client circumstances have been considered properly and that action is taken on the latest available information. This presentation has been prepared for use by Royal Bank of Canada, RBC Dominion Securities*, RBC Phillips, Hager & North Investment Counsel Inc. and RBC Global Asset Management Inc. Royal Bank of Canada, RBC Phillips, Hager & North Investment Counsel Inc., RBC Global Asset Management Inc., Royal Mutual Funds Inc., and RBC Dominion Securities Inc. are separate corporate entities that are affiliated. RBC Phillips, Hager & North Investment Counsel Inc., RBC Global Asset Management Inc., RBC Dominion Securities Inc., and the Private Banking division of Royal Bank of Canada are member companies under RBC Wealth Management. *Member – Canadian Investor Protection Fund. ®Registered trademark of Royal Bank of Canada. RBC Wealth Management is a registered trademark of Royal Bank of Canada, a business segment of Royal Bank of Canada. Used under licence. ©2014 Royal Bank of Canada. All rights reserved.