The Holder – Going Into the Tough Areas

We regularly get tough questions about account holders and issues such as conflict among Holders of Registered Disability Savings Plans and control of the asset.  We’d like to delve deeper into some of these questions.

For an overview of the role of account holder, see our Question and Answer page on setting up and managing an RDSP here.

Adults who are deemed not to have contractual capacity, face the most significant barriers as the only option available to them, unless they live in BC, is adult guardianship or its equivalent.  You can read more about this issue here.  If a beneficiary lives in BC, the Representation Agreement is available whether people have contractual capacity or not.  We blogged on this subject here.

Conflict among Holders – RDSP opened while beneficiary is a minor

One of the more common questions that we get some variation of:  “My spouse and I opened an RDSP for our son/daughter and jointly made contributions.  We have subsequently separated and I would like to continue to make contributions but I don’t want them to have control over or access to the money.  How can I remove them as an Account Holder?”

From a legal perspective, the situation is slightly different depending on whether the RDSP was opened while the beneficiary was a minor or after they reached the age of majority in their province.

Where the RDSP was opened while the beneficiary is still a minor, the Holder must be one of the following: a “legal parent”, guardian or other legally authorized individual, agency or institution.  In instances where both parents of a minor beneficiary are legal parents, they may be Co-holders of the RDSP.  If the parents separate, how can one of the two be removed as a Co-holder.

The easiest mechanism would be with consent.  If either of the two parents consents, then the financial institution can remove them as a Holder, leaving the other as the sole Holder.

If neither of the parents consent, however, the financial institution would likely require a court order which revokes the parent’s status as legal parent.  For example, an order from a custody hearing that removes a parent from the role of legal parent or specifies removal of one parent from the role of Holder would suffice.  It is not clear whether an order that appoints one parent as the legal parent and is silent on the role of the other would suffice.  The financial institutions seem to have slightly differing perspectives on this point.

Beneficiary becomes an adult

When the beneficiary reaches adulthood, the legal parents may continue in the role of Holder even if they are not legally authorized (appointed through a Power of Attorney, Representation Agreement or adult guardianship order).

At the age of majority, however, the Beneficiary may at his/her discretion also become an Account Holder. In other words, the Beneficiary has the right but not an obligation to become a Holder.  Some financial institutions take the position that, at the Beneficiary’s direction, the parents could be removed as a holder of the plan.  Others take the position that a Beneficiary may unilaterally request a Disability Assistance Payment, but not necessarily remove the parents from the role of Holder.  A court order removing the parents would be required or alternatively the Beneficiary could, in some situations, request a disability assistance payment of the entire plan, thus closing the plan.  At that point they could open a new plan as a the sole Holder.  This could result in significant losses, however, if a holdback amount must be repaid or taxes are owing.

If the parents attempt to block the Beneficiary from becoming a holder on the basis of a lack of contractual capacity, there seems to be consensus that the parents would be required to provide evidence of the Beneficiary’s lack of capacity.  Some have indicated that, in the face of contradictory evidence, that they would require a court order to block the Beneficiary from becoming a Holder on the basis of a lack of contractual capacity.

The possibility also exists that an adult guardian, other than a parent, is appointed to manage the affairs of an adult without contractual capacity or a Power of Attorney is appointed to manage the affairs of an adult with capacity.  In these instances, the guardian or Attorney would have the right but not the obligation to act as a Co-holder of the Beneficiary’s RDSP.

Conflict among Holders – RDSP opened while Beneficiary is an adult

When an RDSP is established while the Beneficiary is an adult, legal parents do not automatically have the right to be Holders of the plan.  The Beneficiary, assuming he or she has contractual capacity, does have the authority to be a Holder.  Parents or other individuals or entities may become Holder if they are legally authorized; that is, if they are appointed as an adult guardian, a Power of Attorney or a Representative (in BC).

If there are one or more legally authorized representatives, conflict with respect to acting as holder or making financial decisions, whether they are Co-holders or not, would be dealt with under provincial legislation.