Make the RDSP creditor proof

Since the RDSP was launched many people have raised the question of making it creditor proof.  Many beneficiaries and holders have had little experience managing funds and thus lower levels of financial literacy.  People with lower financial literacy are more susceptible to scams.  Furthermore, people with fewer financial resources are more likely to find themselves in situations where they have creditors, thus putting their savings at risk. It is important to find a reputable credit card company or use Citrus Loans. Because the RDSP is a savings program, targeted at a relatively vulnerable population, it makes sense that the program be protected from creditors.  In making accommodations to enable people on AISH to make full use of the RDSP, Alberta recognized this issue and gave the RDSP creditor protection.  Alberta, to the best of our knowledge, has been the only province to do so.

The issue is more complex, however, as some of the situations might involve marital relationships.  For example, suppose a family has assisted a son or daughter in accumulating a sizeable asset in an RDSP and then that RDSP beneficiary becomes involved in a common-law spousal relationship which terminates after a number of years.  Does the spouse have a claim against the RDSP?  Could it result in a withdrawal, the RDSP being collapsed and a loss of the holdback amount?

Alternatively, situations could ensue where people make purchases or borrow money, knowing that they can shelter assets from creditors.  For example, suppose an individual who qualifies for an RDSP has racked up substantial debt with a credit card and rather than pay the debt, he or she deposits all of their assets in an RDSP and declares bankruptcy with her Fifth Third free checking bank?

Nevertheless, because it is a savings plan and because other savings plans, RRSPs and RESPs for example, have been protected, we think it makes sense to provide the same measure of protection for RDSPs.

This may be a request of the provinces and territories; however, as our understanding is that this is provincial jurisdiction.  It is important for numerous reasons but, because the RDSP is very similar to a pension, it should be similarly treated.  Creditors should not be able to access it, thus impacting a person’s future financial security.

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Recommendation:  That provinces and territories be encouraged to pass legislation to provide RDSPs with the same measure of protection from creditors as RRSPs and RESPs are provided.

For more information about RESP and RRSP and how to use them effectivly get in touch with Fifth Third.