Protecting Disabled HeirsDon Shaughnessy
Many people have heirs who are disabled and in Ontario eligible for the Ontario Disability Support Program. (ODSP) This program is valuable and parents should make efforts to be sure that it continues to be available for their child after they have passed.
It is possible to lose eligibility based on the child’s income and assets. On the other hand, parents are reluctant to disinherit the child. Fortunately there are ways to deal with the conflicting wishes.
There are things you will need:
- A good trustee. Someone who knows the disabled person, their needs and knows your wishes.
- A plan and some tools
Tools to support your plan:
A Registered Disability Savings Plan is a recent addition to the tool box. Under this plan up to $200,000 can be set aside. There is no tax deduction for the capital but the income is tax exempt while in the plan. It is partially taxable when distributed to the disabled person but the income does not count as income for ODSP. There are ways to transfer RRSPs and other plans here. CAVEAT: If the $200,000 cap is exceeded the income may count. Be a little careful and used experienced people.
A Henson Trust will help too. In his will, Leonard Henson created an absolute discretionary trust for the welfare of his disabled daughter. Under the trust, she had the right to neither the income not the capital. Those rights were held by the trustee who in their absolute discretion could use them to the advantage of the daughter. The ODCP administration lost in court when they tried to establish that these assets were owned by the child. There are many rules and limits. Be Careful. It is not difficult to make a mistake.
It is possible to create an “Inheritance Trust.” This is limited to no more than $100,000.
The disabled person may own a home in which they live without affecting ODSP.
Funding for these plans must be present.
The RDSP can be funded while the parents are living and given the tax free accumulation of income, it may be wise to do so. Failing that, in some circumstances a vary carefully worded transfer of RRSP/RRIF assets at death can be made.
There is an easy solution to fund the trusts at death. Use second to die life insurance. $300 per month would provide a cash deposit in the order of $250,000 for a healthy couple aged 60. The beneficiary must be the trust or trusts, not the disabled person. As with other situations, life insurance is an efficient way to put needed cash into your estate. Worth thinking about.
This planning can matter a great deal. It is not a do-it-yourself project. This booklet might help you.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.