Skip to content
All posts

Financial Planning Tips For Advisors with Special Needs Clients

Financial planning is difficult for anyone, and even more so for someone who is a special needs person or has such a family member. Navigating through the various government benefits for special needs clients and putting in place a financial plan for such a client can be an overwhelming challenge for any financial advisor. 

Throughout your career as a financial advisor, many opportunities may arise for you to take on special needs clients. Therefore, advisors should be familiar with the concerns of such clients and fine-tune their strategies to serve them. 

However, financial advisors will find that special clients and their families are unanimous about their main concern: to have a financial plan in place that will provide support for the special needs person in the future. Studies by the American College of Financial Services show that 90% of special needs family members and caregivers admit that caring for their loved ones is more important to them than planning for their own retirement. 

Related: How Financial Advisors Should Engage With Female Clientele?

Navigating The Complexities Of Benefits For The Disabled

Disabled clients and their families come with immense financial strains and pressures. They are often on an emotional roller coaster as they have to face hindrances in their daily routine exacerbated further by anxiety and distress over what the future holds for them. The cost of living for a special needs client or taking care of one is mostly dependent on the type and severity of their disability and the complexity of financial planning required is cognizant of that cost. 

For financial advisors, it is a tough challenge to deal with the tricky and intricate details that are associated with the special benefits that are offered to the disabled in Canada. Other than the benefits provided by the federal government, there are various plans and relief programs in place that are provincial or territorial based. 

To apply for these relief programs, certain criteria must be met and the timing and limitations can be cumbersome. Hence, providing financial advice for special needs clients is a specific niche that requires that financial advisors are well aware of the specifics required to fulfill the eligibility criteria of various benefits in order to best facilitate their special needs clients.

Disability Tax Credit (DTC)

The Disability Tax Credit was introduced by the federal government in 1988 due to the fact that a broader definition of disability became necessary and relief was required for the handicapped and those suffering from mental illnesses as well. The need to provide support for such individuals gave existence to the DTC.

DTC is a non-refundable tax credit that is given to people with disabilities so the amount of tax they have to pay is reduced. It is a benefit that can be availed for minors and adults, however, claiming DTC requires that your client fulfills the eligibility criteria for it.

The eligibility criteria require you to have an approved Disability Tax Credit Certificate by the government. This certificate is required to be signed by a medical practitioner who assures that the individual has a severe and prolonged impairment. However, they further have to provide the effects of those impairments along with a signed T2201 form as the DTC is not only based on the medical condition but its effects as well.

Disability Tax Credit (DTC)

It is essential that a financial advisor is aware of the specific details as it can be highly significant for those suffering from mental illnesses as well as compared to those who have obvious physical impairments. From 2005 onwards, eligibility for the tax credit includes persons whose following activities (more than one) are “significantly” restricted:

  • vision
  • speaking
  • hearing
  • walking
  • elimination (bowel or bladder functions)
  • feeding
  • dressing, or
  • performing the mental functions necessary for everyday life
  • a condition that requires life-sustaining therapy

The Canadian budget has further expanded the definition of mental functions necessary for daily lives. By providing this tax equity, the federal government hopes to provide some relief to special needs clients who have unavoidable excess living expenses to face. Once your client is eligible for DTC they can further apply for federal programs such as the Registered Disability Savings Plan (RDSP).

Registered Disability Savings Plan (RDSP)

The RDSP was introduced in 2008 by the federal government and those who are eligible for DTC can further apply for RDSP. An RDSP is an important tool when planning for a special needs client. It is a long-term savings plan intended to assist special-needs individuals with severe disabilities or parents of such individuals. By assisting your clients to prove eligibility for RDSP you can help ensure their financial well-being in the future. 

Contribution to the RDSP can be accumulated over time tax-free and just like DTC, both minors and adults are eligible for it. However, it has certain restrictions on timing and the amount that can be withdrawn. The rules for applying for an RDSP are complex and therefore due to their lack of understanding many advisors either misunderstand or fail to utilize this benefit. 

The criteria to qualify for RDSP benefits are as mentioned in the following and a candidate is required to meet them all:

  • The individual must be eligible for the Disability Tax Credit
  • They should be under the age of 60 as the RDSP account can be opened and contributions made to it until the end of the year at the age of 59)
  • Is required to be a Canadian resident 
  • Must have a Social Insurance Number (SIN)

Furthermore from January 2011 onwards, in the case of a deceased parent or grandparent, proceeds from their Registered Retirement Savings Plan, Registered Retirement Income Fund, and Registered Pension plan can be carried forward into the RDSP. This additional benefit can be a huge relief to a financially dependent child or grandchild with a disability. 

Helping your client register for this plan can provide relief as they will have the necessary finances needed later in life. Individuals with special needs who are under a guardian’s care are outliving their parents or guardians, therefore, it is essential that they have some sort of sustenance to depend on in case their caregiver is gone.

Canada Disability Savings Grant (CDSG)

If your client has an RDSP in place, they can further apply for a CDSG. As this is a matching grant, the government will help your special needs client by depositing further amounts into your RDSP. The amount of grants the government provides is contingent upon the beneficiary’s income and contribution, however, it can go as far as providing matching grants up to 300%. 

Just like any other relief plan provided for special needs clients, it has certain limitations. Only a Canadian resident with a social insurance number and eligible for DTC can apply for CDSG. Currently, the maximum amount provided by the government is $3,500 each year, the lifetime limit set to $70,000. In addition, those under 49 years of age can apply and the contributions can be made only until the last month of the age of 49. 

Canada Disability Savings Bond (CDSB)

Another relief plan is provided by the government for families who qualify for the Disability Tax Credit and have an RDSP in place. The CDSB allows the government to deposit further amounts to RDSPs of families or guardians of special needs clients who have a low or modest income. The families of beneficiaries of your client that are eligible for this bond have the opportunity to receive up to $1000 annually and a maximum of $20,000 over their lifetime.

Certain criteria must be met in order for your client to prove their dependency on a “low or moderate” income family. Furthermore, in the case of a minor, the parents or guardians must have paid their taxes and must have applied for the Canada Child Benefit for the past two years and must continue to do so for all future taxation years. 

You Are A Support System

Although the federal government has certain relief plans set in place for special needs individuals, you should make the effort to further research provincial and territorial plans for your client as well. These can further provide assistance with home care, assisted living, transportation, child care, prescription drugs, and finding employment.

In addition, conversations about establishing appropriate power of attorney, applying for special insurance policies, and having updated last wills and testaments should be made with your client in case of medical emergencies or otherwise. 

Financial advisors should understand they are more than just “hired help” for special needs clients and their families. They need all the help they can get and you are a crucial part of their support system. Providing services and care for them can be a challenge as your financial strategy needs to be specifically unique for their needs but it can be a highly gratifying experience.