If you have a child or other loved one with a disability, it’s essential to plan ahead to secure their future well-being.
Estate planning considerations
When creating an estate plan that provides for a beneficiary with a disability, there are several things to consider. Start by asking the following questions.
Will your loved one be able to manage their day-to-day expenses? What about any unforeseen expenses?
Your estate plan should help provide your loved one with financial security after you pass away. Assess your beneficiary’s needs and expenses to determine if they will have sufficient resources.
Also, consider your loved one’s capacity to manage their own assets. If they cannot legally own property, they may not be able to hold anything that is gifted or inherited. If your loved one does not have a Power of Attorney for Property, a court application may be needed to appoint a Guardian of Property to control and manage their assets.
Will a gift or inheritance impact your loved one’s eligibility for disability benefits?
An outright gift to your beneficiary can contribute to their financial security after your death, but it may have unintended consequences on their government entitlements. If your beneficiary is currently receiving disability benefits, determine the eligibility requirements and ensure that their new inheritance would not disqualify them. Holding the assets in trust is a common way to bypass this issue.
Do you want your loved one to live in your home?
If your loved one currently resides with you, consider where they will live when you pass away. If you want your beneficiary to continue living in your home, how will expenses be managed? Will they need assistance to maintain the home? If so, you may want to find a caregiver or guardian to support them.
Does your loved one require a legal guardian?
If your loved one is a minor or mentally incapable, you must decide who will be their guardian. A personal guardian can make decisions about a person’s healthcare, housing, food, and other personal matters, while a guardian of property can make decisions about a person’s money, income, property, benefits, and other financial matters.
Registered Disability Savings Plans (RDSP)
An RDSP is a registered savings vehicle for Canadians with disabilities designed to help them and their families save for the future. Generally, any resident of Canada under the age of 60 who is eligible for the Disability Tax Credit (DTC) can be the beneficiary of an RDSP.
Since RDSPs have a lifetime contribution limit of $200,000, parents looking to leave large gifts to a disabled beneficiary may need to consider other options, such as a fully discretionary trust.
Trust planning
If your loved one is unable to manage their own affairs, consider leaving assets in a trust. The terms of the trust can specify how the assets are managed and distributed to your loved one throughout their lifetime. Trusts may be either inter vivos (set up during your lifetime) or testamentary (set up after your death).
A specific type of trust, known as a Henson Trust, is designed to protect your disabled beneficiary’s government benefits and entitlements.
Henson Trusts
A Henson Trust is designed specifically to benefit individuals with disabilities or special needs. It manages the trust assets and is fully discretionary, which means the trustee will determine how funds are managed and distributed. The trustee may use the funds from the trust to pay for your loved one’s regular expenses, while keeping the bulk of the trust intact for future needs.
A Henson Trust allows the beneficiary to remain eligible for certain government disability benefit programs.
For example, the Ontario Disability Support Program provides a basic income/shelter support for an eligible individual between the ages of 18 and 65, with no dependents. They may also qualify for drug and dental benefits as well as certain medical supplies, above what is provided under the Ontario Health Insurance Program. Please note that Henson Trusts are not available in Alberta, Nunavut, or the Northwest Territories.
Choosing a trustee
If you choose to create a trust for your beneficiary, you will need to designate a trustee. This is not a decision to be taken lightly, as the role of trustee is an important responsibility. The trustee will manage the assets in the trust, maintain adequate records, file tax returns, and perform other related tasks. A trustee can be a single person, multiple people, or a trust company like Scotiatrust.
Choose a trustee who understands your beneficiary’s unique needs. The trustee will have discretion over the trust, so they should know how to utilize the trust to best support your beneficiary. Additionally, avoid any conflicts of interest where the trustee might not act in the best interests of your beneficiary. For example, the trustee may be set to inherit the balance of the trust upon your beneficiary’s death.
Ensure that your prospective trustee is willing and able to take on the role, as their obligation may continue for many years. You may instead choose to appoint a trust company as trustee, such as Scotiatrust. By appointing Scotiatrust as trustee, the needs of your beneficiary will be handled with sensitivity, professionalism, expertise, and objectivity.
Planning for the future of disabled loved ones can be difficult, but you will have peace of mind knowing they will continue to receive appropriate care after your death. Contact us to find out how we can help you plan for your disabled loved ones.
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