How to leave an inheritance to someone on ODSP

Regular readers of this blog know that I especially love finding articles by knowledgeable people that are readable and straightforward, because I can share them with you and know that you're getting some valuable information. I have found one such article - click here to read it - from Ottawa lawyer Donna Neff.

In this article, Ms. Neff gives some practical information about how to leave an inheritance to someone who is, or in the future likely will be, receiving Ontario provincial benefits due to a disability. The issue there is generally how to leave an inheritance without causing the beneficiary to be cut off from valuable provincial benefits. Obviously you would want to leave an inheritance to better someone's life, not to cause difficulties.

Although this article is specifically about Ontario, all provinces have similar benefits and family members across Canada wonder about leaving inheritances to children and grandchildren with disabilities without messing up their benefits. In all provinces but Alberta, the Henson trust discussed by Ms. Neff is an option to be considered.

I highly recommend this article to anyone who has a disabled beneficiary in his or her life.

Seminar for parents on RDSPs and Henson trusts

I received this note on LinkedIn, and it looks like a fantastic opportunity for the parents of a disabled child (of any age) in Ontario to get some great information. Here is the note I received:

"Presentation next week on RDSPs & Henson Trusts. February 6th at 6pm at the Living Arts Centre in Mississauga. RSVP or more info 905-896-8373. Know a parent with a disabled child? Forward this information to them. They will learn about all the government funding available and how to put their minds at ease to support their children."

The note was posted by Jennifer Black, Wealth Manager at Dedicated Financial Solutions. I don't know Ms. Black so I can't vouch for her personally, but if she works within the financial industry she should be a great source of information about these topics. I'd appreciate any feedback from anyone who attends this seminar.

For those who may not know, a Henson Trust is a specialized trust set up in the wills of parents with a disabled child. The purpose of the trust is to ensure that the disabled child does not lose provincial support benefits because of the inheritance.

Tips for giving inheritances to disabled children

A challenging aspect of estate planning is that of leaving an inheritance to a disabled child. A big part of the challenge is leaving the child a decent sum of money and maximizing the inheritance without interfering with valuable government benefits. I've just found an excellent article from http://www.advisor.ca/ that talks about many aspects of estate planning for a disabled child. It's very thorough, but readable. I recommend this article to anyone whose family includes a disabled child of any age. Click here to read it.

Ten reasons you might want a trust in your will

Whether or not a trust in your will would be useful depends only in part on how much money you have to deal with. Trusts in wills (called testamentary trusts) are not only for those with multi-million dollar estates; they can also be very useful for people like you and me. Although many people shy away from the idea of a trust because they believe it must be complicated, in reality it's more simple than you might think.

A trust is created in a will whenever your trustee (usually your executor) holds onto money or property for someone else, i.e. one or more beneficiaries of your estate. The terms of the trust such as when the beneficiaries are paid and how much they are paid are set out in your will, by you.

A trust is put into a will to serve a particular purpose, and in this post I'd like to briefly describe the top ten common purposes:

1.  A child inheriting under a parent's will can inherit the entire share on the day they reach the age of majority. A trust can be used to hold that share,or some part of it, until the child is older and more mature.

2.  A trust can protect a child who is hopeless with handling money by ensuring that a pre-determined amount is paid to the child on a monthly or yearly basis.

3.  A child with a drug addiction can be protected by a trust that pays for basic necessities such as rent, but does not make the whole share available at once.

4.  The share of a handicapped child can be managed for the child's lifetime in a way that brings the parents peace of mind, while at the same time doesn't cause the child to lose valuable provincial health benefits.

5.  A spouse who is already in a high tax bracket may not want the additional income that would be earned once a share of the estate is received. Setting up a trust for the spouse's share allows the tax to be earned (and paid) by the trust rather than the spouse.

6.  In the case of a second marriage, using a trust would allow a person to give a surviving spouse the use of assets (such as the family home) for that spouse's lifetime, after which the assets could go to the children of the first marriage.

7.  A trust can be set up to provide for emergency funds for any vulnerable family member - a child, an elderly parent - to be used when and if they are needed, with any remainder going to the family members you specify.

8.  A trust provides funds for the taxes, insurance and upkeep on an asset that is used by more than one beneficiary, such as a lake cottage.

9.  Funds that are held in a trust are safe from creditors of the beneficiary (except in the case of bankruptcy).

10.  If a beneficiary's marriage breaks down, funds held in trust are generally not held to be matrimonial property, and are therefore not lost to the beneficiary's divorce.

As you can see, these are things that affect even those of us with modest estates. If your lawyer is suggesting a trust for your will, keep an open mind to see if it would work for you.

Leaving an Inheritance to someone with a disability: Is a Henson Trust the only option?

The basic problem described by parents or other family members who want to leave funds to a disabled beneficiary is how to do so without causing the beneficiary to be cut off from provincial disability benefits. In this article, Donna Neff, a lawyer in Ontario, discusses the pros and cons of the various strategies people use. Ms. Neff refers to ODSP, the Ontario plan, but each province has its own disability benefits plan, and her comments apply to all.

One item I would add is that in Alberta, Henson trusts are not valid. They are valid everywhere else in Canada, to my knowledge.

Click on the link below to read the article:

Leaving an Inheritance to Someone with a Disability: Is a Henson Trust the Only Option?

What is a Henson trust?

A Henson trust is a testamentary (i.e. set up by your Will) trust that is used to hold the inheritance of a handicapped person. They are used in a very specific way.

A person who is severely mentally or physically handicapped to the point where he or she cannot earn a living is entitled to provincial or territorial government benefits. These benefits include a monthly sum of money for payment of accommodation and other expenses, as well as access to free or subsidized medical, dental, optical and other services. The handicapped person's family want to ensure that these benefits keep flowing to the handicapped person.

A person who receives these provincial and territorial benefits may be cut off from the benefits if they have a certain amount of assets or income. This rule is put into place to ensure that the benefits are paid to people who really need them. In Alberta, as an example, a person receiving benefits is entitled to own no more than $100,000 in assets, as well as a home and a car before the benefits are clawed back. This is known as an asset test, and the benefits program also has a means test that looks at how much income the handicapped person receives in income. If there is more than a certain amount of income, the government benefit will be reduced dollar for dollar.

This is where estate planning comes into the picture. When the parents of a handicapped person are making Wills, they have to decide how much of their estates they are going to leave to the handicapped child. If they leave too little, they run the risk that the child will not be adequately and comfortably provided for. There is also a risk that the Public Trustee could contest the Will on behalf of the handicapped child to get a greater share of the estate given to the child.

If the parents leave too much to the child, they risk cutting the child off from government benefits. Many parents tell me that the value of the medical, dental and optical benefits is very great and would drain a $100,000 trust long before the child passed away.

The solution hit upon by estate planners is to hold a share of the parents' estate in trust. It could be the whole estate or a share of it. The wording and set-up of the trust are crucial. If you simply take the handicapped child's share of the trust and leave it in a regular testamentary trust for that child and nobody else, with payments going to the child and nobody else, that money has clearly been left to the child and will be deemed as an asset of that child.

A Henson trust is set up differently. The trust is held in the name of the handicapped child as well as other people, usually the child's siblings and possibly nieces and nephews. Payments out of the trust are fully discretionary, meaning that payments are made as the trustee of the trust decides. Payments might be made to the handicapped child, or they might not, but the child has no right to demand any money be paid to him or her. Payments might also be made to the other siblings or nieces or nephews as the trustee decides. Therefore it can't be determined that any or all of the money really belongs to the handicapped child.

Henson trusts are completely legal and above board. They are effective in every province and territory in Canada, except for Alberta.

If you are interested in knowing more about whether a Henson trust would be a good idea for your family, find an experienced estate planning lawyer and talk it over.