Financial planning considerations for persons with disabilities
Ensuring that your loved ones are cared for after your passing is a common goal for families. This is especially relevant where your loved one is a person living with disabilities. The challenge is – even the most well-intentioned gifts can have unforeseen financial implications. To ensure that your chosen beneficiary’s financial resources, such as social assistance benefits, are not diminished by any gifts, you may wish to consider using a Henson trust among other tax planning strategies as part of your overall estate plan.
It’s important to understand that there are limits to social assistance benefits
Every province and territory have laws and regulations governing social assistance and support programs – with many having supports in place for persons with disabilities. To qualify for these supports an individual must demonstrate “need” on an asset and income basis. If a gift, which may be intended to support the person, inadvertently pushes them above the eligibility criteria, the government supports they may need will be denied.
How does a Henson trust help?
Where applicable, a Henson trust allows for assets to be left for your loved one without being considered in determining social assistance eligibility. This can provide support for unforeseen circumstances that might otherwise not be covered by assistance, without impacting the individual’s general right to assistance. Additional advantages of the trust structure include providing protection to the person from both themselves, and people who might wish to take advantage of them.
What makes a Henson trust?
In order to have an effective Henson trust, two criteria must be fulfilled:
- The inheritance must be payable to the trust, and not to the person; and
- The terms of the trust must be sufficiently “discretionary”.
What this means is that the assets will be managed for the benefit of the person, but legal ownership will be held by the trust and trustee (except in Quebec where a separate trust “patrimony” is created). Further, the trustee will have complete discretion in determining if, when, and how much will be distributed to the person at any given time.
How do I choose a trustee?
While almost anyone can be chosen to act as a trustee of the Henson trust you create, the discretionary nature of the trust means that any trustee should, at the very least, be sufficiently trustworthy. Other questions that should be considered include:
- Is the trustee a mature adult?
- Is the trustee willing and able to act?
- Does the trustee have a relationship with the beneficiary or are they willing to develop one?
Since the trust is designed to last the lifetime of the beneficiary, further thought should be given to appointing alternate trustees, under the same considerations given above. If there is no one to suit the role of trustee, consider appointing a corporate trustee.
Other planning opportunities
Simply creating a Henson trust in your will is not the only method by which you can care for a loved one living with disabilities. Depending on which province or territory you reside in, the Henson trust you create may qualify as a Qualified Disability Trust (QDT). A QDT functions to reduce the taxes payable on income earned in the trust, allowing more money to be saved for the times when it is needed most.
Further consideration should be given to a Registered Disability Savings Plan (RDSP) as a complement to your Henson trust. These plans are federally regulated and designed for the long-term financial security of persons with disabilities. They provide tax deferred growth on contributions of up to $200,000 in private contributions, as well as potentially $70,000 in federal grants, and $20,000 in federal bonds.
Special criteria apply to QDTs and RDSPs and further criteria must be met for the RDSP to receive grants and bonds; contact Bay & Associates to see if either of these tools can be utilized in your overall estate plan.
Certain types of planning, especially direct beneficiary designations, can have a detrimental impact on the effectiveness of Henson trusts. Without proper care, the amount of money available to fund a Henson trust can be reduced, and if the disabled person is a direct beneficiary, benefits could even be denied, despite a Henson trust being in place. A thorough review of your estate plan should take place to identify and address any potential complications, before they become a problem.
As you can see, estate planning around every contingency can become overwhelming. By working with Bay & Associates, you can ensure that the right steps are being taken to secure your legacy and protect your loved ones. Email us for a copy of our “Leaving an inheritance to a person with disabilities” white paper for further information.
Written and published by IG Wealth Management as a general source of information only, believed to be accurate as of the date of publishing. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on up to date withholding rules and rates and on your specific circumstances from an IG Wealth Management Consultant. Trademarks, including IG Wealth Management and IG Private Wealth Management are owned by IGM Financial Inc. and licensed to its subsidiary corporations.