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.

Is an inheritance held in trust for a child paid to the parent?

This reader's note contains two of the questions I hear more often than almost any others. The reader's children have been left money in a trust and she is wondering about some of the logistics. Here is the question:

"My aunt left a will and probate has been done, and distribution of funds has been received. My question is about residue which is left to my twins, both 16 yr old children. The trustee is the executor. How long do they take to settle or close the case and distribute whatever is left over? And do trustees pass over the funds to the guardian, which is the mother?"

I'll tackle the questions one at a time. The first question is about how long it takes for an executor to wind up and estate and pay out the residue of the estate. The answer will depend on a couple of things.

The residue of the estate is not paid out until all of the bills and liabilities of the estate have been paid. Bills themselves are not usually a problem, but it can take a while to have tax returns done, pay the taxes, and receive a Clearance Certificate from Canada Revenue Agency. Because of this, the time it takes to wrap up an estate varies widely.

On a related note, the time that elapses before pay-out also depends on whether or not the executor is willing to make an interim distribution before the Clearance Certificate is received. Most executors by far do this, but they are not required to do so.

As a general rule, you should expect an estate to be wound up and paid out within a year of the death of the testator unless there are complications such as a lawsuit, or complex assets to deal with.

Your second question asks whether the trustee will pay the children's funds over to the guardian. Generally, no they don't. They have been given the job to look after the money for a certain amount of time in a certain way, and they can't make sure that 's done if they give the money to someone else to look after. Being someone's mother doesn't entitle you to receive money in a trust for them, though most parents are pretty annoyed when they hear this.

Also keep in mind that often trusts are written so that if a child should pass away before the end of the trust, the money left over is to be paid to someone else. Obviously this is unlikely to happen if the money has all been paid out to the guardian.

The most important factor in determining whether the children's funds may be paid to their parent is the wording in the will itself. Specific wording in a will always over-rides the general rule.

Leaving your estate to a pet - is it possible in Canada?

I recently came across this post from http://yourestatemattersblog.ca about leaving your estate to your pets. I often see that topic online, but rarely is the post from a Canadian law firm, as this one is. So if you have ever wondered about leaving money to look after a pet, click here to read this article.

Who is the trustee of the trust for a minor child?

The following question from a reader asks about the logistics of administering a trust for a minor child. As you will see, a properly drafted will is the key to this arrangement running smoothly. Here's the question:

My aunt left a will for me and my children, both minors, 15/13 yr old. If their funds are held under a trust, who will be their trustee? Is it their mother or anyone that is appointed by the executor? If funds are held until minors are 18 years old, can the parent use the funds before they turn 18? Can my aunt or friends be the trustee if the parents of minor are still alive?When funds are left to a minor in a will, the will itself is the guide to how the trust is going to be set up and administered. The trustee of all trusts in a will is the executor and trustee of the estate, unless the will specifically says something different. For example, some people who are leaving large trusts behind will name a trust company to manage the trust to ensure that it's done properly and honestly. This can happen even when the trust company is not an executor.

In your question, you ask whether the trustee is someone appointed by the executor. You'll note that the trustee is not appointed by the executor, it IS the executor, unless as I said, the will specifies someone else. In some circumstances, it could be the Public Trustee for the province.

It's interesting that you ask whether someone else can be the trustee if the minor's parents are still alive. This has nothing at all to do with the parents. It's all about a gift coming from an estate and that gift isn't given to the parent. It's going to a child, by way of a trustee. And yes, that trustee can be anyone who is named in the will. In your case, it can't be the aunt because you said it's her will, so presumably the trust isn't created until she has passed away. It could, however, be friends or siblings. The parents do not have the right to be a trustee just because the beneficiary is their child. It isn't their money so they have no right to it. In fact, plenty of trusts are set up with specific instructions that the child's parents never, under any circumstances, be made the trustee.

The will should also state the age at which the minor is supposed to inherit the money. While the child can't inherit while he or she is under the age of majority, the will can specify a later age. Don't assume the minor will inherit on his or her 18th birthday; the will might say age 21 or even older. The age set out in the will is the age the child will inherit. I've seen people set up trusts for individuals who won't inherit until they are 65!

Whether or not some of the money can be used before the child turns 18 also depends on the will. If the will simply says the child inherits at age 18, then that's what happens. No advances would be allowed. It would take a court order to change that, and such orders are not always granted. In the will that sets up the trust, look for a specific clause that allows the trustee to use the funds, and for what purposes. This type of clause should also specifically say whether the capital of the trust can be used, or only the interest earned on it can be used.

Sometimes funds set aside for a child are restricted so that they can only be used (before age of inheritance) for specific things such as education. In most cases though, a will says that the funds can be used for the child's general benefit. Keep in mind though, this is at the discretion of the trustee. You or the child may ask for funds but the trustee can say yes or no.

Hopefully this answers a few questions about trusts for minors. I hope it also points out to the many parents reading this post just how important it is to have a trust for children properly drafted in your will. Simple isn't always better if it leaves out these essential details.

Why holding the family cottage in a trust can make sense

The question about how to pass the family cottage on to the next generation continues to generate quite a bit of discussion. I found the attached article from Tim Cestnick of the Globe and Mail really useful. It explains the benefits of holding the cottage in a trust while you're alive. Click here to read the story.

In trusts you can trust to find tax savings

This article in today's Globe and Mail discusses ways of using trusts, both those you set up while you're alive and those you set up in your will. It's an interesting article and gives plenty of examples for using trusts. Click here to read it.

Giving to someone who likes a few too many

This blog post by Cesia Green gives an excellent example of how a trust can be used in a will to protect a family member with an addiction. This is also an example of working well together with an estate-planning lawyer who will come up with ideas and solutions that you might like.  Click here to read the article.

Using incentive trusts

I really liked this brief but informative article from All About Estates. It describes some situations in which trusts are used to help bring about certain behaviours in beneficiaries. Interesting stuff. Click here to read it.

Why does a trust have to file a tax return?

Some time ago I posted about the tax returns that an executor must file, including both the final return for the deceased and the trust returns on behalf of the estate. Click here to read that post. I've been asked a follow-up question, that is "why does a trust have to file a tax return?"

The simple answer is that when a person passes away, Canadian law states that a new taxpayer is created. That new taxpayer is the estate. Because the assets in an estate are temporarily held on behalf of the beneficiaries, the estate is a form of trust. A trust exists whenever one person or entity holds property or funds on behalf of another person.

Most estates are completed within a year of the deceased's passing away, unless of course there is a lawsuit to be settled or complicated business affairs to be wound down. For that year, the assets in the estate may earn income in the form of interest, dividends or capital gains. The new taxpayer - the estate - will report that income on a return just as individuals do, and pay tax on it if applicable.

In many estates, money is paid into a trust account for a minor or handicapped adult. Once the money has been paid into this trust specifically for that person, the taxpayer is this new trust, not the estate. If there are no trusts set up in a Will and the executor immediately pays out all assets to the beneficiaries, the executor may not have to file any tax returns for the estate.

My suggestion to all executors would be that you check with an accountant about whether or not you have to file a tax return for the estate. I can give you general information here, but if you consult an accountant you will have the chance to crunch the actual estate numbers and get individualized advice.

Are trusts going to the dogs?

This is an interesting idea - long term endowed care for individuals who can no longer look after their pets. I'll keep my eye on developments here for pet owners and keep you up to date. Click here to read the article.

You've received your inheritance... So now what?

For some excellent advice from Megan Connolly of Toronto Estates and Trusts Monitor on how to deal with your inheritance, click here to read her latest post.

More inheritances going to the dogs

Have you ever wondered whether all of those million-dollar inheritances going to the pets of Americans would work the same way here in Canada. As I've mentioned before, they would not. Click here to read an article in the National Post that explains more about the difference, and gives some ideas about how we Canadians can look after our pets in our wills.
(Photo of Leona Helmsley's extremely rich dog is from Getty Images, from the National Post article).

Protecting son from himself while protecting his inheritance

This article is American, but the issue is one that estate planners hear everywhere. What can you do about leaving an inheritance for a child with a drug addiction? The article mentions trying to plan to avoid being cut off from "Medi-Cal", which is the plan in place where the subject of the article lives, but we have similar government benefits here. Click here to read the article from the Sonoma Valley Sun.

Myths about trusts

In this comment, Paul Fensom takes a recent National Post article about trusts one step further, and talks about the cost of setting up and maintaining trusts. Click here to read it.

Parents should always consider a trust for children

While I don't think that all parents must include a trust for children, I do agree with the statement that they should consider it. Trusts are flexible and easier to set up than people may realize. Talk to your estate planning lawyer to find out what trusts can do for your children. Click here to read this article from lawyer Ken Laino.

Attached photo is also from that article in Asset Protection Law Journal.

To Trust or Not to Trust… That is the Question?

In estate planning, there is always plenty of talk about trusts. This article tackles the basic questions of "what are trusts?" and "do you need a trust?". Click on the link below to read the article.

To Trust or Not to Trust… That is the Question?

Put Faith in Trusts: Estate Planners

Are trusts just for the wealthy? Absolutely not! This article describes how all of us can benefit from using a trust in our estate planning. If your estate planner suggests using a trust, don't automatically dismiss it as being "too complicated" because they really are simple to set up, and there can be so many financial benefits in the right circumstances. Click here to read the article.

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.

The truth about family trusts

The Globe and Mail is carrying an article today about family trusts. It's pretty interesting reading if you're looking for basic information about what a family trust can do for you. Click here to read the article. I always read the comments too because sometimes I can pick up quite a bit of extra information that way.

If you're appointed as an executor, should you accept?

One of the things I've heard many times from clients is that they've been named as someone's executor and they are honored to have been chosen. Don't kid yourself. It may be intended as an honour but the reality is that it's detailed, lengthy, thankless work at times. In this post I want to look at a few of the factors you should consider before you agree to accept the job of being executor.

Keep in mind that you can't be forced to be an executor. You can refuse ("renounce") as long as you refuse before you do anything about the estate that makes you look like you're accepting the job. In many cases, people accept the role out of family obligation, but if that is not the case for you, consider the following questions:

1. Are you prepared to accept the fact that being an executor carries personal liability for any losses you cause to the estate due to fraud, negligence or mistakes?

2. Are you in (or likely to be in) a conflict of interest? The most common of these is a person who wants to contest what he or she is getting under the Will but who is also named as executor. It's not a good idea to try to do both.

3. Is a bond required? And if so, are you bondable? If you live outside of the province in which the estate is to be probated, you will likely have to obtain a bond in the full amount of the estate before you are allowed to proceed.

4. How long is the estate likely to take before it is completely wound up? Are there lengthy trusts under the Will, such as for a young child who is not going to inherit until he or she is 21? Are you prepared to be in charge of the trusts for that long?

5. How complex is the estate? Does the testator own a business that you would have to sell, carry on or wind up? Does he or she own a farm that will require management until it is sold? Are there beneficiaries that are going to be next to impossible to track down? Are there problems with the Will itself that are going to need Court interpretation? Is anyone going to contest the Will?

6. Do you have the time and skills to properly look after the estate? Note that executors can delegate administrative tasks, but can't delegate tasks that require him or her to exercise judgment or discretion.

7. If there is a co-executor named, can you two get along well enough to manage an estate?

8. What are the family dynamics like? If you're part of the family, are long-standing rivalries or disputes going to cause a problem for you? Will you be able to resist the temptation to take sides? Will you be able to handle it if people in your family criticize or nag you?

9. How much compensation will you receive when all the work is done? Hopefully the Will will contain some guidance, but in the event it does not, will getting paid from the estate be a problem?

As you can see, this is a more complex decision than you might have thought at first. Try to be practical in deciding whether you're really prepared to take on an executorship. If you really don't want to do it but there simply isn't anyone else, consider accepting the executorship but hiring a trust company to handle most of the work for you.