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.

Do I have to report an inheritance if I receive provincial benefits for handicapped persons?

Provincial government benefits for individuals who can't support themselves due to a handicap are based on both an asset test and an income test. This means that a person who has more money than the maximum amounts allowed by the provincial law can't receive the benefits. An individual's financial picture is assessed at the time benefits are first applied for, but the assessment is also ongoing while the person is receiving the benefits.

Recently I was asked whether a person receiving the benefits must report an inheritance. Inheriting money could, and sometimes does, push an individual over the maximum limit allowed, causing the person to lose the provincial benefits they had been receiving. Many families who receive provincial benefits tell me that the monthly cheque for the handicapped person is valuable, but not nearly as valuable as the subsidized access to medical, dental and optical care. Therefore losing the benefits can be a real detriment to many individuals.

This isn't a problem if the inheritance is millions of dollars, as receiving that much money would ensure that the individual would always be able to afford care. But for most of us, an inheritance is much more modest.

The answer to the original question is yes. You must report any changes in your financial situation, even if that means you might lose the government benefits. The question came from a reader in Alberta, so I am attaching a link here to a Tip Sheet for reporting changes to AISH. All provinces and territories have a similar reporting requirement.

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?

Free help for seniors to complete benefits applications

I recently came across the Forms Information and Assistance Program that is put on every second Monday in Stony Plain by Family & Community Support Services. This programs helps seniors complete forms and applications for Alberta Seniors Benefit, AISH, OAS, and Capital Region Housing Corporation. I know from personal experience that there are a lot of seniors out there who are not receiving all of the benefits to which they are entitled, and sometimes the problem is the paperwork. If you or a senior in your life would like to book a free appointment for this program, call 780-963-8583.

There are other similar programs to this one in different areas. If anyone reading this post would like to tell us about another, please do so by clicking on the "comment" button.

What is informal trusteeship?

Informal trusteeship is a practical, low-cost way of putting an individual in charge of handling finances for a person who doesn't have the mental capacity to deal with his or her own finances. It's suitable for a person who doesn't have much in the way of assets, but does have income from a government pension or program.

For example, an elderly person who has very few assets but receives CPP and OAS benefits might need an informal trustee just to deal with those benefits. The elderly person doesn't have real estate or investments to be managed so doesn't really need a full court-appointed trustee, and would have trouble affording that. The elderly person just needs someone to help with receiving the government benefits and paying the bills with the benefits.

The federal government programs that allow for informal trusteeship are Canada Pension Plan (CPP), Old Age Security (OAS) and Department of Veteran's Affairs. You would have to contact each one separately. In Alberta, the provincial programs that allow for informal trusteeship are Assured Income for Severely Handicapped (AISH), Alberta Seniors Benefit, and Employment & Immigration. Other provinces allow informal trusteeship for their programs that are similar to these Alberta programs.

Putting an informal trusteeship into place is nothing like putting a court-appointed trusteeship into place. A court application is not required and there is no cost involved. The arrangement is put into place by contacting the government program in question and filling in their requested documents.

However, the responsibilities of the trustee put in charge are very much the same as they apply to the income stream that the trustee manages. The trustee is still managing money on behalf of another person and must act in the best interest of that person. For example, a person who is made an informal trustee may not use the money for his or her own purposes and may not make loans to him/herself with it.

It's important for anyone who is, or is planning to be, an informal trustee to understand the limitations of his or her authority. He or she can only deal with the benefit paid by the government department that has appointed him or her. An informal trustee CANNOT:
- sell the elderly person's home or car
- look after any investments
- look after any bank accounts except the one that receives the benefits
- handle any sums of money (e.g. inheritance, gift, lottery winnings, insurance pay-out) that are payable to the elderly person
- sell or give away the elderly person's personal and household belongings
- sign any contracts on behalf of the elderly person.

If I open an RDSP for my disabled child, will he/she lose government benefits?

The Registered Disability Savings Plan (RDSP) has been around long enough now that most people involved with disabled adults are aware of the general operating rules. However, I do still get quite a few questions from parents who wonder if they might accidentally cause their children to lose their government disability benefits by creating this kind of account.

Provincial plans pay eligible handicapped individuals a monthly support amount, as well as offering free medical, dental, optical and other services. Obviously this is very important to most families as a financial benefit for the handicapped child. However, the provincial plans impose a financial test on the handicapped individuals so that if the individual has either more assets or more income than is allowed, they lose their benefits.

While parents are interested in setting up an RDSP, they want to make sure they don't lose those provincial benefits.

The Canada Revenue Agency has clearly stated that the money paid into an RDSP and the earnings on that money are not counted as an asset for the purpose of figuring out what a handicapped individual owns. In other words, opening an RDSP will NOT cause your child to be cut off from provincial benefits.

A few highlights about RDSPs:

• - a handicapped person is the beneficiary of the RDSP


• - there can be only one account per beneficiary


• - the account can be opened by the beneficiary him/herself or by the parents or legal representative of a beneficiary


• - the beneficiary must live in Canada


• - the maximum amount that you can contribute to the RDSP is $200,000 during the beneficiary's lifetime, but there is no limit per year


• - contributions put into a plan are not tax-deductible


• - anyone can put money into an existing RDSP


• - contributions must stop the year the beneficiary turns 59


• - there are matching government grants that are based on family income


• - the government matching grants can be as high as $70,000 during the beneficiary's lifetime


• - there are additional grants (bonds) for low-income families


• - when the beneficiary takes out money, he or she does not pay tax on the amount that the family contributed; he or she only pays tax on the portion the government contributed, and earnings on the government contributions


• - when the beneficiary dies, any money left in the RDSP must go into his or her estate.

If you want to know more about these, talk to your banker or your financial planner.