Special Needs Planning Presented and created by: David Yurich, B.Comm., CFP ®, RFP, CLU., TEP Director Private Client Group, Senior Investment Advisor

2 Special Needs Planning  Provide for our communities', sons & daughters with a disability → ”Quality of Life” they are entitled to it now and when we are gone  Protect their entitlement to Ontario Disability Support Program & other Government Programs  Must be certain that the planning that is done, does not infringe on government regulation (s)  Ensure children cannot outlive the benefits they derive from our planning

3  As parents, want guarantees in place to ensure intentions are met after we are gone  Fairness to Siblings:  Common theme not to burden non disabled children with responsibility of caring for disabled sibling  Parents realize these children either lead or will lead their own lives  Ensure plans are simple & effortless  Proper balance between needs of All children Special Needs Planning

4  What the disability and caregiver tax credit means to you and your family  Why creating a Henson Trust, a Disability Expense Trust, via a Testamentary Trust Will is so important to you and your family  How we can use the tax savings to offset the creation of these trusts  How we can use the tax savings to offset the long term funding costs these trusts  Explore the reality and importance of long term financial and estate planning  Review the current benefits offered through the Ontario Disability Support Program Benefits  Explore the newly created Registered Disability Savings Plans with a focus on the available Canada Disability Savings Grant and the Canada Disability Savings Bonds Special Needs Planning Goals

5 Disability (DTC) & Care Giver Tax Credit (CGTC)  Copy of DTC in package –Package contains: Federal DTC Certificate and a list of current Qualified Medical Expenses Tax Credit items  Must be completed by parent and qualified practitioner  What constitutes the qualification for DTC, CGTC

6 DTC & CGTC… “Why Bother?”  Max DTC transferred from child (2014 tax year) $7,  Additional Supplement $4530 (Child under age 18-offset with child care expenses)  Total possible Tax Credit $12296  Tax savings range $1,165 - $1,844 (real $$)  Retroactive to date of diagnosis - can go back 10yrs or more ($ $18440) Source: 2014 Federal Schedule 1 (T1 General)

7 Care Giver Tax Credit & Family Caregiver Amount  Children with disabilities possibly grow up to be adults with disabilities  Tax credit $4530 ($6588 if eligible for the Family Caregiver Amount) – Income dependent  In addition to DTC

8 “Medical Expense” Don’t qualify for DTC or CGTC, then claim all associated medical expenses Don’t qualify for DTC or CGTC, then claim all associated medical expenses Claim medical expenses for yourself, spouse or common law spouse partner & children born 1997 or later Claim medical expenses for yourself, spouse or common law spouse partner & children born 1997 or later List of “Eligible Expenses” in kit List of “Eligible Expenses” in kit Source: 2014 T1 General Income Tax Guide

9 Will Kits… Not the answer for families of people with disabilities  Kits advertised on very low cost  Advertisements suggest replacing a competent lawyer to complete Wills by filing out blanks on a questionnaire  Concern → Don’t ask the right questions regarding special needs  We encourage retaining professional legal advice with individuals who specialize in this field

10 Testamentary Trust Wills, Henson Trust, & Disability Expense Trusts  What is it ????  Trust that arises on death through a Will  Creates legal relationship between the Settlor, the Trustee & the Beneficiary  What makes Testamentary Trusts different from other Trusts is the favorable tax treatment they receive under Income Tax Act (ITA) (At this time, New Rules pertaining to Graduated Rate Estates and Disability Expense Trusts, effective January 2016))  Pay tax at graduated levels for those who qualify for the Disability Tax Credit

11 Testamentary Trust Wills, The Henson Trust & Disability Expense Trusts  Terms of Trust can provide for payment of income/capital or both to Beneficiaries  Interest of Beneficiaries can be fixed in the Will OR  Discretion to allocate the income and/or capital among the Beneficiary(ies) can be left to the Trustee

12 Testamentary Trust Wills, The Henson Trust & Disability Expense Trusts  Beneficiaries of Trust have interest in Trust Property  Trustee is legal owner of property  Trustee has authority to control the management of the assets  Trustee has absolute power over the assets with discretion to exercise power based on Settlors wishes/intentions

13 Taxation of Testamentary Trust  Trust treated as separate tax payer under ITA  Trust files Income Tax Returns to report income, gains & distributions to Beneficiaries each year  Can have a non-calendar year (at this time)  Trust receives deduction from income & gains in a year for amounts paid to Beneficiaries in that year

14 Taxation of Testamentary Trust  Living Trusts “Intervivos” pay highest Marginal Tax Rate (MTR)  Testamentary Trusts pay tax at a graduated level  Ontario combined Federal/Provincial 2014 First $ % Over $ $ % Over $ $ % Over $ $ % Over$ $ % Over $ $ % Over$ $ % Over $ $ % Over $ % Source:

15 Taxation of Testamentary Trust  Tax payable in province of residence of Trust or where majority of Trustees reside  Incomes maintains its character (interest, dividends, capital gains) when paid out to Beneficiaries

16 Taxation of Testamentary Trust  Access to graduated rates, more beneficial to retain income & gains and have Trust pay tax versus Beneficiary (at this time, provided quality for DTC)  Trustee can elect to have income & gains taxed in Trust even if paid or payable to Beneficiary  Portfolio of Investments of 8% per year OR $60,000 in income saves $8,500 in taxes each year

17 Why consider a Testamentary Trust?  When a spouse has enough assets in his/her name to permit other spouse assets to be held in trust to save tax  Children/grandchildren have enough assets who want to save tax  Protect assets widow/widower’s new suitor or children spouse’s on marital breakdown  Protect spendthrift or disabled child/children

18 Ontario Disability Support Program (ODSP) Operated by Ontario Ministry of Community & Social Services Designed to meet unique needs of people with disabilities who are in financial need or who want & are able to work and need support ODSP provides income support to help pay for living expenses (like food & housing) Benefits available:  Drug/dental coverage, vision care, hearing aids, diabetic supplies  Help with transportation costs to medical appointments  Help with work related expenses, child care costs & items needed for work  If qualify → May also receive special diet allowance to offset costs of casein, gluten, soy or sugar free diet

19 Ontario Disability Support Program (ODSP) To Qualify: ● 18 yrs of age or older-payable to 65 (if needed) then CPP, OAS & GIS takes over ● Ontario resident ● In financial need ● Have substantial physical or mental disability that: ● is expected to last a year or more ● makes it hard for you to care for yourself, take part in community life or work ● ODSP will look at: ● Financial situation ( assets, income, housing costs, size of family) ● Disability status

20 Ontario Disability Support Program (ODSP) Rate Chart-November 2012 Basic Needs Table Number of dependants other than a spouse Dependants over 18 years Dependants years Dependants 0-12 years Recipient (See Note 1 below) Recipient and Spouse (See Note 2 below) Recipient and Spouse (See Note 3 below) 0000$596$882$1, , , ,0631, , , , ,0631, ,0811, ,1331,2641,571 For each additional dependant, add $202 if the dependant is 18 years of age or older, or $18 if the dependant is years of age, or $0 if the dependant is 0-12 years of age. Source: ncome_support/6_1_ODSP_ISDirectives.aspx

21 ODSP & Inheritances… Family members if left an inheritance who are receiving ODSP benefits will not be eligible for ODSP benefits ODSP considers inheritance as a gift Exemptions: - up to $6,000 of total value of all gifts is exempt from income (in any 12 month period without affecting ODSP Income Support) - $6,000 limit does not always count as income-when used to pay for disability related items or services - ODSP must approve item or service in advance to be exempt Source:

22 ODSP & Inheritances… Example Inherit $ in August ODSP will consider it when calculating income support for August If $ left over in next month- (Sept.) ODSP will treat it as an asset in that month & asset rules will apply that can affect eligibility for income support

23 ODSP & Inheritances… Inheritances up to $100,000 will not count as an asset if it is placed in a Trust Trust must be setup according to ODSP rules or ODSP benefits could be affected If inheritance more than $100,000 can still continue benefits if placed within Discretionary Henson Trust Setup through Will & gives Trustee power to decide when to pay & how much money to pay Beneficiary of the Trust

24 ODSP & Henson Trust History of Henson Trusts Real solution to inequity is Henson Trust Available in Ontario since 1989 Henson trust places estate assets in the care & control of a trustee to be administered for the benefit of a Beneficiary(s) Inheritances placed in a properly prepared absolute discretionary trust (Henson Trust) are not the asset of the child & will not affect provincial benefits “Discretionary Trust”, “Henson Trust” & “Absolute Discretionary trust” often used interchangeably

25 Motivation for Parents & Guardians to set up a Henson Trust  Special beneficiaries often benefit from guidance in handling large sums of money or significant assets  Either temporarily or on L.T. basis  Some beneficiaries are unable or unwilling to seek guidance  May at some point be left without care unless special provisions put in place

26 Henson Trusts  Must be created during a parent’s or guardian’s lifetime (Intervivos) and  To the terms of a parent’s or guardian’s will (testamentary) These Trusts are invaluable in planning for child’s care when Parent/Guardian no longer there

27 Benefits of Henson Trust  No lifetime limit to the exempt amount of assets that can be held in a Henson Trust  In contrast- there is $100,000 lifetime limit to a non Henson Trust, (any Trust where the Trustee does not have absolute discretion)

28 The Bottom Line Henson trusts, ODSP, Benefits & Tax Credits are special arrangements necessary to properly ensure that Loved Ones are given the extra care they deserve & that inheritances will not be wasted

29 Options for Funding of Henson Trust  Savings: The establishment of a regular savings program may be able to provide adequate funds to Henson Trust  Parent’s Estate: Provided that the parent’s estate is sufficiently large, it could provide for their own needs in their elder years, as well as having enough left over to fund the trust  Family members: siblings, aunts and uncle’s, grandparents could be willing and able to provide money to fund the trust  Life insurance: For the average family, life insurance may be the only way that they can leave a large sum to the trust by making small monthly payments. It is also possibly the only way of funding a trust that is guaranteed. The other resources mentioned above may not always be available but a paid-up life insurance policy can guarantee future funds

30 Registered Disability Savings Plan (RDSP)  Savings plan intended to help parents & others save for long term financial security of person who is eligible for DTC  Contributions non tax deductible  Made until end of the year that Beneficiary turns 59 years

31 RDSP…  Withdrawals of contributions are not included as income for the Beneficiary  However, Canada Disability Savings Grant, Canada Disability Savings Bond & investment income earned in the plan are included in Beneficiary’s income for tax purposes when paid out of RDSP

32 RDSP… Who can become a Beneficiary? One must be:  Eligible for Disability amount  Valid SIN  Resident of time plan is entered into  Under age 60

33 RDSP…  Legal parent of Beneficiary  Guardian, tutor or curator of the Beneficiary  Individual who is legally authorized to act on behalf of Beneficiary  Public department, agency, institution that is legally authorized to act on behalf of Beneficiary Who can set up an RDSP?

34 RDSP…  When plan is opened by a Beneficiary’s legal parent’s, the legal parents may continue as holder(s) of the plan after Beneficiary reaches age of majority  When Beneficiary becomes an adult, he/she may be added as joint holder

35 RDSP…  In all other cases, the Beneficiary is the only one who can be a plan holder once they have reached age of majority & are contractually competent  If a plan is opened by somebody other than the Beneficiary, or Beneficiary’s legal parents, that person or body must be removed as a holder of the plan when Beneficiary reaches age of majority

36 RDSP…  An individual who is eligible to be Beneficiary of an RDSP, may have reached age of majority but may not be competent to enter into a contract  If so: qualified person may open RDSP for individual and become holder Qualified Person are: -guardian, tutor, curator of Beneficiary, or person legally authorized to act for Beneficiary -public department, agency, institution that is legally authorized to act for beneficiary Tutor or Curator: legally appointed individual either by will or by POA

37 RDSP… Holder who is not Beneficiary of plan does not have to be resident of Canada but must have valid SIN or BIN (business identification number) in order to establish plan

38 How Do You Establish an RDSP?  Person who is qualified to be a holder of the plan must contact a participating financial institution that offers RDSP’s (can invest in GIC’s, mutual funds, savings deposits etc.)  Note: Beneficiary can have only one RDSP at any given time, although this plan may have several plan holders throughout it’s existence  Plan holder is the person who establishes the RDSP & makes contributions on behalf of the Beneficiary

39 RDSP Limits  No annual limit  Lifetime limit of $200,000

40 Canada Disability Savings Grants  Government will pay matching grants of 300%, 200% or 100%, depending on family income & amount contributed  RDSP can receive maximum of $3,500 in matching grants, in a year  Maximum grant of $70,000 in Beneficiary’s lifetime Source:

41 Canada Disability Savings Grants  Grant can be paid to an RDSP on contributions made to Beneficiary’s RDSP by Dec 31 st of yr Beneficiary turns 49 yrs old  When annual net family income is less than $87123 the grant will contribute: - $3 for every $1 contributed on first $500 - $2 for every $1 contributed on next $1,000 (a $1,500 deposit will attract maximum grant of $3,500)  When annual net family income is over $87123 the grant will contribute $1 for every $1 contributed up to $1,000 Source:

42 Canada Disability Savings Bond  Government will pay income tested bonds of up to $1,000 a year to low income Canadians with disabilities regardless of amount contributed  Lifetime bond limit is $20,000  Bond can be paid to RDSP until year in which Beneficiary turns 49  When annual net family income is $25356 or less the government will provide $1,000 per year without any contributions, between $25356 and $43561, bond is prorated, over $42707, no bond is paid  Bond & grant must stay in plan for 10 years otherwise must be repaid Source:

43 Payments Made From RDSP Only certain payments can be made from an RDSP  Payments to Beneficiary referred to as Lifetime Disability Assistance Payments (LDAP), or Disability Assistance Payments (DAP)  Payments to Beneficiary’s estate follow death of Beneficiary  Repayment of grants & bonds to the government

44 Lifetime Disability Assistance Payments (LDAP) Once started must be paid at least annually until either the plan is terminated or Beneficiary has died Begin by end of year in which Beneficiary turns 60 Subject to annual maximum withdrawals limit based on Beneficiaries' life expectancy & fair market value of plan

45 Disability Assistance Payments(DAP) Beneficiary can request withdrawal from RDSP between ages years DAP is considered “financial hardship” payment Maximum withdrawal based on formula Then Beneficiary of plan will be entitled to request & receive DAP from the plan

46 RDSP Payments & Income Tax  CDS grant, bond & investment income are included in Beneficiary Income for tax purposes when paid out of the RDSP  RDSP issuers report the taxable portion of the payments from the plan in box 78 of T4A slip

47 RDSP-What happens when impairment no longer exists?  RDSP must close no later than the end of calendar year following the first full calendar year that the Beneficiary is no longer considered mentally or physically impaired  Grant, Bond and Investment earnings are taxable, contributions are tax free  Similar tax treatment occurs at death

48 RDSP & Provincial Disability Benefits BC, Alberta, Saskatchewan, Manitoba, Ontario, Newfoundland, Labrador & Yukon have all exempted the RDSP as an asset & income when determining a person’s eligibility for Provincial Disability Benefits

49 New for 2011, Past Grants  Eligible to claim past unclaimed grants for preceding 10 years (2008 inception date)  To be eligible, must still qualify for DTC and be appropriate age in each preceding year  Past grants paid to annual max $10500  Unused past grants carry forward future years

50 New 2011 Past Bonds  Eligible to claim past unclaimed bonds for preceding 10 years (2008 inception date)  To be eligible, must still qualify for DTC and be appropriate age in each preceding year  Depends on contribution amount, beneficiary/family net income  Past bonds paid to annual max $11000  Unused past bonds carry forward future years

Thank You! For more information / free consultation / This presentation was prepared solely by David Yurich who is a registered representative of HollisWealth™ (a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The views and opinions, including any recommendations, expressed in this presentation are those of David Yurich alone and not those of HollisWealth. ™ Trademark of The Bank of Nova Scotia, used under license. HollisWealth and the Scotiabank companies do not provide income tax preparation services nor do they supervise or review other persons who may provide such services.