Providing for special needs beneficiaries

Special attention must be paid to planning for the needs of disabled beneficiaries, some of whom will be dependent on their parents for most, if not all, of their lifetimes. Issues concerning financial support, housing, healthcare, education, and employment of the disabled beneficiary must be addressed and a comprehensive plan put in place.

Providing for the lifetime care and support of a disabled beneficiary requires significant resources. Oftentimes, a client might also wish to leave an inheritance to other beneficiaries. So one of the main challenges of planning for a disabled beneficiary arises in ensuring there are sufficient estate assets to provide for his or her care while leaving an inheritance to other children or beneficiaries.

A major concern when planning for special needs beneficiaries centres on entitlement to benefits under the Ontario Disability Support Program (ODSP). An Ontario resident, 18 years or older, and having a disability as recognized by ODSP qualifies for ODSP benefits.

An unmarried individual receiving ODSP benefits is not required to work, however pursuant to the ODSP Act that person can’t have money or own assets exceeding $5000.00 at any time, unless they are exempt assets such as a principal residence, or motor vehicle. Additionally, anyone receiving ODSP benefits cannot receive gifts totaling more than $5000.00 in money or assets, over any 12-month period, unless related to a need based on the individual’s disability.

These restrictions on ownership of assets and money may cause a beneficiary who receives an inheritance of greater than $5000.00 to be disqualified from receiving ODSP benefits. However, trust funds (also known as inheritance or shelter trusts), with a value of $100,000.00 or less and resulting from an inheritance or insurance policy proceeds, are exempt funds under the ODSP.

Choose your trustee wisely

Where an individual desires to leave a disabled beneficiary more than $100,000.00, a method for providing support, without the loss of ODSP benefits is through the Absolute Discretionary Trust, otherwise known as the Henson Trust.

A Henson Trust is a vehicle through which additional support can be provided for a disabled beneficiary who’s already receiving ODSP benefits. In order for the beneficiary to continue receiving ODSP benefits, the trustee must ensure that no more than $5000.00 is spent on the beneficiary in any consecutive 12-month period.

When appointing a trustee to administer the Henson Trust, it’s of utmost importance that the trustee is someone with a strong business acumen, who would act in the best interests of the disabled beneficiary, and treat her fairly. Given that this beneficiary has no legal recourse to compel payment from the trustee, and any payments made above the prescribed limits would disqualify the beneficiary from receiving future benefits, the choice of trustee in these circumstances should be made with much consideration.

When does a Henson Trust make sense?

Whether a Henson Trust is necessary for a special needs beneficiary will depend on several factors. In determining how best to provide for a disabled beneficiary, the following should be considered:

• (1) Is the estate sufficiently large to provide for the support and needs of the disabled beneficiary such that it becomes unnecessary to claim ODSP benefits, and a better quality of life is provided for said beneficiary entirely through his or her inheritance?
• (2) Given the nature and condition of the disability, and desire to leave an inheritance to other beneficiaries, is it more beneficial to all the beneficiaries to create a trust of more than $100,000.00 through which support can be provided to a special needs beneficiary, in addition to the ODSP benefits the beneficiary will receive?
• (3) If a Henson Trust is created for a disabled beneficiary, who is best able and capable to act as trustee?

  Consider the following scenario:

  Ryan is Mary’s 30-year-old son. He suffers from schizophrenia and will likely never be able to work. Ryan receives ODSP benefits as a result of his disability, which cover the majority of his expenses, but Mary would be reassured knowing that Ryan is being cared for and enjoying a higher standard of living than he would receive living on ODSP benefits alone. Mary’s estate is valued at approximately two million dollars. In addition to providing for Ryan, Mary has two other adult children she would like to leave part of her estate to.

  Mary may decide to create a Henson Trust for Ryan if the trust she sets up is to exceed $100,000.00. Conversely, she may decide that she wants her estate to support Ryan entirely (which may mean he will no longer qualify for ODSP benefits), and potentially leave a smaller inheritance to her other children who are not disabled beneficiaries, and in a much better position to provide for themselves.

  If Mary decides to set up a Henson Trust for Ryan, she may appoint one or both of his siblings to be his trustee(s), if she feels they would be able to fulfill the duties adequately.

  However, whatever decision is eventually reached, it is advisable that Mary consult with the proper legal and financial advisors.

  

  Akua Carmichael

  Tax & Estate

  Akua Carmichael, LL.B, J.D., TEP, is director, tax and estate planning services, with Empire Life. Akua.Carmichael@empire.ca