Disabled Beneficiaries - Hull on Estates and Succession Planning - #181
Listen to: Disabled Beneficiaries - Hull on Estates and Succession Planning #181
This week on Hull on Estates and Succession Planning, Paul Trudelle and Jordin Atin discuss the considerations that must be taken into account with disabled beneficiaries.
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Disabled Beneficiaries - Hull on Estate and Succession Planning #181
Welcome to
Paul Trudelle: Hi and welcome to Hull on Estate and Succession Planning. You’re listening to episode 181 on Tuesday, September 15. Hi Jordan.
Jordan Atin: Hi Paul.
Paul Trudelle: Good to see you today. We’re pinch hitting today for Ian and Suzana.
Jordan Atin: Who are you? Are you Ian?
Paul Trudelle: I’ll be Ian.
Jordan Atin: Okay, wow that shouldn’t be so hard for me, to be Suzana. Sorry Suzana.
Paul Trudelle: They’re big shoes to fill.
Jordan Atin: They’re high shoes to fill.
Paul Trudelle: High shoes.
Jordan Atin: Yes, yeah.
Paul Trudelle: Today we thought we’d speak a little bit about estate and succession planning where there’s a disabled beneficiary.
Jordan Atin: Right.
Paul Trudelle: And the considerations that have to be taken into account when you’re dealing with a beneficiary with special needs like that and you also want to take into account the benefits that that beneficiary receives and how you can maximize those benefits while providing for bequest out of the estate.
Jordan Atin: Right, yeah. You know, it’s more common than certainly I would have thought coming into this area about how many families have somebody who’s, you know, either disabled or there’s a chance that they’re not going to be able to work and be disabled. So it’s very common.
Paul Trudelle: I did a paper on Ontario Disability Support Program that we’ll touch on and there’s over 225,000 recipients in Ontario…
Jordan Atin: There you go.
Paul Trudelle: …with those benefits. And when you’re planning estates, I would imagine there’s many more beneficiaries who aren’t recipients of ODSP that you would want to provide for.
Jordan Atin: That you might yeah.
Paul Trudelle: Consider as well.
Jordan Atin: For sure.
Paul Trudelle: It’s a very common issue and it may also be an issue that’s becoming more and more prevalent as our population ages.
Jordan Atin: Yeah, for sure.
Paul Trudelle: So we can discuss briefly Ontario Disability Support Program as the background for the special provisions that you may want to put in place or put into your estate plan. In Ontario there’s a benefit called the Ontario Disability Support Program.
Jordan Atin: Right.
Paul Trudelle: That provides for benefits for disabled individuals and provides for financial assistance. There’s other benefits as well. There may be even more important benefits such as drug benefits and medical and dental care as well. Or I guess dental care is the bigger one.
Jordan Atin: Right.
Paul Trudelle: In order to receive disability benefits, you need to meet their medical criteria as being disabled but you also have to meet a very difficult, I was going to say low, but maybe it’s a high threshold as far as income and assets that you can have while still receiving the benefits.
Jordan Atin: And that’s a good point because they test both your income and your assets, which is…I mean you could have a very low income and have assets and that would disqualify you. So that’s really…that’s what we try to avoid when you’re trying to apply for ODSP.
Paul Trudelle: That’s right. So I think the assets are $100,000.
Jordan Atin: Well the assets…you can put it in a trust but the threshold for assets is $5,000. So it’s a very low…now there are some things excluded like a home, tools for your, you know…but…
Paul Trudelle: Important exclusions that need to be taken into account when estate planning.
Jordan Atin: Right.
Paul Trudelle: So you can make a bequest of assets that are excluded and not disqualify a person from ODSP.
Jordan Atin: Right. But the threshold of $5,000 is very low so what you’re trying to avoid when you’re planning that is not to give them assets that are going to disqualify them, put them over the $5,000 mark.
Paul Trudelle: Right.
Jordan Atin: On the asset test.
Paul Trudelle: So you could provide assets that are excluded from the definitions that the Plan has.
Jordan Atin: Right.
Paul Trudelle: What other mechanism can you use to avoid giving the person assets that would disqualify them?
Jordan Atin: Well the first thing to…there’s both the asset…so let’s look at it from the asset point of view. The problem that estate planners have is that giving somebody an interest in a trust is an asset.
Paul Trudelle: Right.
Jordan Atin: So the right to get income from a trust is an asset in itself, regardless of the income. It’s something of value that you could sell, right? I mean, if I have an interest in a trust that’s going to pay me income over time, I could sell that to you and generate money because you know that income is going to come. So that’s one of the things that we can’t do if we’re going to leave a bequest to somebody is we can’t give them an interest in a trust that is going to provide them with a guaranteed source of income because that in itself is an asset.
Paul Trudelle: That’s an asset that would disqualify them.
Jordan Atin: Right.
Paul Trudelle: So you can get around that by making, by creating a trust that’s entirely or wholly discretionary.
Jordan Atin: Right. That’s what we try to do. So what the law says now is that if somebody has an interest in a trust, merely as a discretionary beneficiary. In other words, the trustee doesn’t have to give them a dime if they don’t want to. So it’s purely discretionary. Then the Court doesn’t consider that to be an asset because there’s nothing…
Paul Trudelle: There’s no right.
Jordan Atin: No right, exactly.
Paul Trudelle: Immediate or otherwise.
Jordan Atin: Exactly.
Paul Trudelle: To that asset.
Jordan Atin: So that get’s you around the asset test. So if you give them an interest, a purely discretionary interest in an estate, then they don’t…that doesn’t count as an asset.
Paul Trudelle: Okay. And I guess in exercising their discretion under that trust, the trustee has to be careful not to make any distributions that are going to put the recipient off side with their benefits.
Jordan Atin: Right because then we get into the sort of income test, right? So it doesn’t qualify as an asset. Now we’ve got to worry about the amount of income that any recipient can receive in any one year which is, let’s use the $5,000 number. So a recipient can’t receive more than $5,000 per year from a trust or from a job or from gifts or any of that because if they do, then they’re off side on the income side. So now we have a trust in which they’re not entitled to any specific amount. The trustee has discretion. They’re going to try not to give more than $5,000 a year from that trust or else they will disqualify. So they have to keep their eye on the ball and make sure that…now there are exceptions to that, right? That $5,000 is just pure gifts or income. But there are certain things you can buy for a disabled person, right?
Paul Trudelle: Right. And that’s an important consideration and I think there’s a list of things that won’t count as income or assets to the recipient.
Jordan Atin: Right, I think they’re referred to as disability-related expenses. And so you could spend as much as you want on disability-related expenses and give the disabled person as much of those as they want without worrying about the amount.
Paul Trudelle: Right.
Jordan Atin: It’s just the extra income that they can’t receive more than that say $5,000.
Paul Trudelle: Another important exception that we see people trying to take advantage of often is a residence. You can own a principal residence and a cottage property and not be off side on the asset side of it. The difficulty is though, how do you carry that?
Jordan Atin: Right. I mean $5,000 doesn’t go very far.
Paul Trudelle: Doesn’t pay very many expenses at all.
Jordan Atin: You know, I think ODSP now pays somewhere between $700 and $900 a month. That, you know, you can scrape together that plus the $5,000 that you can get in any 12 month period. It’s not a calendar year so there’s all kinds of things you’ve got to be worried about when you’re dealing with that. But, yeah, I mean it doesn’t go very far for sure.
Paul Trudelle: So from the estate planning side of things, the trust that we’re talking about, the discretionary trust or the Henson trust is an important tool to keep in mind. I mentioned the $100,000 figure. I think I was referring to or thinking about the disability trust or the trust that can be established if there is no Henson trust in place and the ODSP recipient can receive up to $100,000 from an estate or insurance proceeds and shelter that in a trust.
Jordan Atin: Right. So that’s a sort of an exempt asset, so you can have an interest in a trust as long as that trust is no more than $100,000.
Paul Trudelle: Right.
Jordan Atin: And so what we see sometimes is a parent hasn’t planned properly, they leave their disabled child $100,000. That child, if they received it all it would be their asset, $100,000 puts them way off side. So what they do is they take that $100,000 and they can shelter it in a trust and then they get the income from that. And as long as the income from that is less than $5,000 then they’re okay.
Paul Trudelle: They’re okay on the asset side…
Jordan Atin: And the…right. But that $100,000 is…I mean, it’s sizable but it’s not…if you leave them $1,000,000, you can only shelter $100,000. They’re going to be off side.
Paul Trudelle: They’re going to be disqualified so, there’s no point.
Jordan Atin: Yeah. So it’s a tricky business.
Paul Trudelle: Well it was good discussing those issues with you.
Jordan Atin: Well Ian, you’re looking dapper today.
Paul Trudelle: Well thank you very much for watching and for listening. If you want to leave a comment, please contact our website where you can get links for leaving comments.
Jordan Atin: Great. I haven’t got any of those yet so maybe after this one.
Paul Trudelle: You might get a few.
Jordan Atin: So thanks Paul.
Paul Trudelle: Thank you.
You have been listening to Hull on Estates and Succession Planning by Ian
Hull and Suzana Popovic-Montag. The podcast that you have been listening
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