Disabled Beneficiaries And Discretionary Trusts

January 11, 2012

By Paul Jasiura

Do you have disabled children? or grandchildren? or others who are or could potentially become beneficiaries of an interest in your Estate?

Are your present plans of Investments and Life Insurance in danger of simply replacing Government Benefits otherwise available to these children or grandchildren?

Are you aware of the law affecting such beneficiaries?

You should consider a Discretionary Trust and/or a Disability Trust in your Estate Planning.

Parents, relatives or friends who want to benefit disabled individuals may have special estate planning needs. The disability could, for example, be blindness, autism, developmental delay, acquired brain injury, schizophrenia, or other conditions.

The beneficiaries may be minors now, but as adults they will be entitled to certain provincial government benefits under the Ontario Disability Support Program Act (the ODSPA).

Such benefits include not only a monthly payment to that beneficiary, but also certain coverages for dental and medical expenses. It is generally to the greater benefit of that beneficiary to remain entitled under the ODSPA, but you can inadvertently disentitle him/her if you are not careful in the way you structure the inheritance being left to him/her.

If you do not have a Will, you cannot effectively plan for your disabled beneficiary. So the first step in your estate planning is to get the professional advice you need. That advice might lead you to purchasing life insurance or other products where beneficiary designations can be made.

Discretionary Trust

    • Discretionary Trusts can be contained in your Will. In addition if you intend to designate a disabled person as a beneficiary of life insurance, RRSP, Pension, or other estate planning products, we generally suggest that you instead designate a person as beneficiary “in trust” for the disabled person and that a separate Trust Declaration be made at the same time, containing Discretionary Trust provisions.
    • Without such a trust the amount of the inheritance or benefit may put the disabled person over the $40,000 limit of assets, thereby disqualifying him/her from further government support until that inheritance or benefit is reduced to the $40,000 limit. There is no monetary limit to how much you may leave in a Discretionary Trust, but payments out of such Discretionary Trust must comply with certain maximum amounts in each 12 month period.

Disability Trust

    • If there is a Will, it can also be worded to establish a Disability Trust to a limit of $100,000. Payments can be made out of the Trust for disability-related expenditures without resulting in disentitlement to support benefits.
    • The $100,000 Disability Trust can be created either under the terms of a Will or under a trust declaration attached to a designated beneficiary under a life insurance policy (or both, but the total cannot exceed $100,000).

It is absolutely critical, however, that any Disability Trust or the Discretionary Trust be well crafted. A lawyer familiar with the disability issues should be engaged.

A disabled person will not be disentitled to support benefits just because he or she owns realty that is his/her principal residence. A bequest of such a house is therefore also a good planning technique in appropriate circumstances.