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Monday, December 9, 2013

If I inherit Dad's house, will I lose my provincial disability benefits?

The intersection of estate planning and provincial disability benefits can be tricky. There are definitely rules that trip up the unwary. Nobody wants to have to worry about losing his or her disability income, though we have all heard dismaying stories of that happening. A reader recently wrote to me to ask about how this works. Her question and my answer are below:

"I am on Manitoba Disability/ social assistance. I live with my father in his house. If I get his home when he passes away, do I lose my disability? This is terrifying stuff. I take it there will be no capital gains unless I sell the house later?"

I'm glad you asked the question, because it gives me the chance to make things a bit less terrifying for you. If you inherit your father's house one day and you continue to live in it, this will not cause you to lose your disability benefits.

In each province, there are regulations that govern what a person can own and how much money they can earn before they are cut off from the provincial government disability benefits. This is because the benefits are designed to help only those whose disability prevents them from earning enough funds to cover their basic necessities. The amounts and regulations vary from province to province. Each province publishes its guidelines, but since this question was Manitoba-specific, I'm attaching a link here to the information you need. 

The guidelines of most provinces, including Manitoba, allow a person to own a primary residence without losing benefits. 

You haven't mentioned whether you have siblings, but if you do, it would be a really good idea for your father to make a will leaving you his home. Otherwise, the house would probably have to be sold and the funds divided among the children. 

Also, depending on your age and if your father is willing, he might consider talking to a banker or financial advisor about putting any funds he might want to leave to you into a Registered Disability Savings Plan (RDSP). According to the provincial guidelines, you are allowed to own an RDSP without losing benefits. However, if you inherit more than a specified amount of money, you will be cut off from your benefits. The amount you may inherit varies across Canada; in Manitoba it's only $4,000.

Now, back to your father's house. If it is his principal residence, and it sounds like it is, then it may be transferred to you without any capital gains tax. If you own it and live in it as you plan to do, it then becomes your principal residence. Therefore, there will be no capital gains tax when you sell it or pass it along in  your will. You only pay capital gains tax on a property if it is not your principal residence, regardless of where or how you received it.

I hope this helps. Whenever I can take the stress out of someone's day, I'm happy to do so.

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