The LDAP formula and pre-eligibility
Moments after tweeting what I claimed to be my last recommendation to improve the Registered Disability Savings Plan, I read Travis Coady’s submission to the federal government’s RDSP Review. With eloquence and detailed analysis, Travis outlines three additional recommendations that I think have real merit and would definitely improve the RDSP for people, especially those with medical conditions.
Read Travis’ full submission here. Thanks for the great work Travis.
1. Permit the life expectancy variable in the Lifetime Disability Assistance Payment formula to be determined individually by a beneficiary’s physician.
I won’t repeat Travis’ analysis in detail (I recommend that you can read his letter), however he argues that the current situation has three negative outcomes:
- The payments of people who contribute less than the federal government are (heavily) loaded towards the end of their life
- For the many people with disabilities who will not live until 83, much of their RDSP asset will end up in their estate and benefit someone other than who it was designed for
- People will utilize alternative planning mechanisms, such as Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs) for the added flexibility they provide.
The benefits of permitting a flexible life expectancy is that:
- Payment schedules will be tailored towards individuals and their unique situations (as an aside the greatest trend occurring in disability services and supports from coast to coast and around the world is towards personalization)
- RDSPs will be more likely to benefit the beneficiary
- More people will utilize and benefit from the RDSP
2. Enable people who are diagnosed with lifelong, progressive diseases and conditions to qualify for the Disability Tax Credit on the basis of their predicted future condition
When people are diagnosed with many diseases and conditions it is certain that their physical and/or mental condition will deteriorate over time, and they will:
- have reduced earning capacity
- have reduced ability to participate and contribute without additional supports
- require additional support from family and friends.
It makes inimitable good sense and good public policy to enable them to prepare for the future with an RDSP. As Travis points out, the delay in waiting until they qualify for the DTC under current rules has a huge cost.
3. Allow unused DAP payments to accumulate as a method of increasing the flexibility in the use of RDSP assets
In his analysis, Travis identifies what I think is a critical element affecting the uptake of RDSPs: the true value of an RDSP asset is not its “fair market value” but potential that it has to enable good lives. While the federal government, thanks again to Minister Flaherty and the Government of Canada) has created an absolutely AMAZING mechanism for people with modest means to accumulate an asset, the true of value of the plan is diminished by people’s inability to use the asset. People has not said this in so many words but as I replay countless conversations with people over the past three years, this is what they were really saying.