Toronto Estate Lawyer : Hull & Hull Law Firm : Trust Mediation and Succession Planning : Serving Ontario, Ottawa, Mississauga, Hamilton

• Print
• Comments
• Trackbacks

Like it or loathe it, the recent federal budget is an election budget, and strives to do something for everyone.

From an estate planning prospective, it reaches out to families with a disabled member, by establishing the Registered Disability Support Plan (“RDSP”).

The plan is available in 2008, and is similar in style to the current Registered Education Savings Plan. An individual who is eligible for the disability tax credit, their parent or legal representative may establish an RDSP.

The intent is that the RDSP would provide an income for the disabled individual once they attain the age of 60.

Under an RDSP, parents, beneficiaries or others will be able to contribute a lifetime maximum of $200,000. Contributions can be made until the beneficiary is 59. While contributions are not tax-deductible, investment income earned on investments within the plan will accrue tax free, and will be attributed to the beneficiary when paid out.

The Government will provide matching contributions, depending on family income. The matching grants are between 100 and 300%! The lifetime matching grant is $70,000.

Benefits paid out under the RDSP will not reduce any federal income-tested benefits. It is stated that the federal government will work with the provinces in order to ensure that the RDSP is “an effective saving vehicle to improve the financial security and well-being of children with severe disabilities.”

The effectiveness of the meshing between the federal plan and the provincial support programs, such as Ontario’s Ontario Disability Support Plan, is yet to be seen.

Thank you for reading,

Paul Trudelle

• Print
• Comments
• Trackbacks

If a testator does not adequately shelter the bequests or insurance policy beneficiary designations to a disabled beneficiary, the disabled beneficiary may still have a way of sheltering the gift to him or her by taking advantage of what is known as a “disability expense trust”.

A disabled beneficiary, or member of a benefit unit, is entitled to put monies derived from an inheritance or the proceeds of a life insurance policy into a trust. These funds, up to a maximum value of $100,000, will not be considered assets for ODSP purposes.

This trust is distinct from a Henson Trust in that the funds may be received directly by the recipient and subsequently placed into the trust. Such a vehicle is available to shelter the funds were the testator failed to do so.

Any income earned on the funds and accrued will not be considered income to the disabled beneficiary if it the fund does not exceed $100,000.

A recipient is given six months from the receipt of the funds in order to establish such a trust. The ODSP recipient has an obligation to advise the ODSP of the receipt of the inheritance or insurance policy proceeds, and should also advise of the intention to establish the trust within six months of the receipt of the funds. Failure to notify ODSP, or failure to establish the trust within the 6 month period will likely resulting an interruption of benefits.

Matters are complicated where the nature of the disability renders the ODSP recipient incapable of giving instructions to establish the trust. In such a case, the attorney for the incapable person under a valid Power of Attorney may give instructions, and establish the trust. If there is no attorney, a guardian of property will be required, and a formal application to the court for such an appointment will have to be made.

Have a great day.

Paul Trudelle

• Print
• Comments
• Trackbacks

The Ontario Disability Support Program specifically provides that an absolute discretionary trust, also known as a “Henson Trust”, is not considered to be an asset of the disabled beneficiary. Thus, this gives a testator a significant planning vehicle to provide for a disabled beneficiary.

The discretionary trust must be truly discretionary, and the disabled beneficiary must have no vested right in the trust. Otherwise, the ODSP will consider the trust to be an asset of the disabled beneficiary.

To be a true discretionary trust, the trust must provide that any distributions to the disabled beneficiary are in the absolute discretion of the trustee. There must also be a gift over to a third party, so that the disabled beneficiary is not able to call for the collapse of the trust. Thirdly, the testator should provide for the distribution of any accrued income during the 21 year period, so that there is not a forced distribution of these funds.

Typically, the trustee will use the fund to purchase exempted assets for the disabled beneficiary, or to make distributions of income to the disabled beneficiary up to the $5,000 threshold, or to provide for the disabled individual once they turn 65 and are no longer entitled to benefits.

As the discretionary trust is not an asset of the disabled beneficiary, there is no limit to the amount that can be placed in the trust.

As the discretion given to the trustee is absolute, the choice of a trustee is of particular importance.

Have a great day.
Paul Trudelle

• Print
• Comments
• Trackbacks

Yesterday, I introduced the basic principals of the Ontario Disability Support Program (“ODSP”). In order to maintain benefits, the disabled individual must acquire assets that exceed the income and asset thresholds. In an estate planning context, this can be achieved, to a certain extent, by effective planning.

The ODSP exempts a number of assets from the calculation of the disabled person’s assets as defined under the relevant legislation and regulations. These exempted assets can be gifted to the disabled beneficiary, or bequested under a will, without disqualifying the individual. A partial list of assets that can be gifted or bequested includes:

• A principal residence, or the proceeds from the sale of a principal residence, provided that the proceeds are used for the purchase of another principal residence within 12 months from sale;

• An interest in a second property, if the Director is satisfied that the property is necessary for the health or well-being of a member of the benefit unit. For example, a second property that is a cottage could be considered necessary for health and well-being. Further, a second property in a country with currency restrictions that cannot be liquidated or where proceeds cannot be remitted outside of the country may also be exempted

• One motor vehicle, regardless of value, and a second vehicle if the net value is no more than $15,000 and it is required to permit a dependent of the applicant to maintain employment;

• The total cash surrender value held in an insurance policy, to a limit of $100,000;

• Prepaid funerals for an applicant or spouse;

• Registered Education Savings Plans;

• The amount remaining to be paid to a member of the benefit unit under a mortgage or agreement for sale (however, actual payments received qualify as income);

• Business assets of a self employed applicant or member of the benefit units, up to $20,000;

• Tools of the trade that are essential to the operation of a business or the employment of a member of the benefit unit;

• Assets derived from a dependent child's earnings;

• Assets derived from the earnings of a dependent adult who is attending secondary school full time;

• "Locked in" RRSPs;

• The income from "locked in" RRSPs in certain circumstances;

• Loans for the purpose of purchasing exempt assets;

Thus, a gift or a bequest of a principal residence to the disabled beneficiary will not disqualify that individual. The disabled beneficiary could use the ODSP benefits to maintain the property. However, care must be taken in order to ensure that the disabled individual can maintain the property without requiring extra income in excess of $5,000, or the burden of maintaining the property and the funds required may otherwise disqualify the beneficiary.

Other options include the purchase of a pre-paid funeral for the disabled beneficiary, or the purchase of a life insurance policy.

Tomorrow, I will discuss the use of a discretionary trust, also known as a “Henson Trust”.

Have a great day.
Paul Trudelle

• Print
• Comments
• Trackbacks

UNABASHED PLUG: On January 17, 2007 I will be speaking as part of the Hull and Hull Breakfast Series Seminars. (For information, please see our website.). I am presenting a paper entitled “The Ontario Disability Support Program: What Every Estate Solicitor Needs to Know”.

As a lead up to that presentation (and to take advantage of the research done to prepare the paper), I thought I would spend some of my blog time this week discussing some of the issues to be considered were a disabled beneficiary is involved.

When one is planning an estate that involves a disabled beneficiary, special considerations must be taken into account. Obviously, the disabled beneficiary has special needs. The testator must discuss his or her hopes and goals in providing for the disabled beneficiary with the planner in order to ensure that these needs are, to the extent possible, facilitated. In addition, the estate planner must ensure that the benefits sought to be bestowed upon the disabled beneficiary are maximized.
The estate planner must ensure that these issues are fully canvassed. The estate planner must make efforts to ensure that a proper level of comfort is established with the client, as many clients are reluctant to discuss particulars of a disabled child. Further, the client may not be aware of the significance of the disability on his or her own estate plan.

Specifically, when considering an estate plan involving a disabled beneficiary, any bequests should be considered in light of the relevant social assistance legislation.

In Ontario, a program called the Ontario Disability Support Program exists. This program provides benefits to disabled Ontarians who meet certain financial and medical eligibility requirements. Once qualified, the ODSP recipient is entitled to income supplements of up to $979 per month. In addition, and often more importantly, the recipient is entitled to drug and dental benefits. Over the course of the disabled person’s lifetime, these benefits can be substantial.

In planning one's estate, one must keep the financial eligibility requirements in mind so as to not inadvertently disqualify a disabled beneficiary from receiving ODSP or similar benefits. A bequest to a disabled beneficiary who is also an ODSP recipient may have the unintended effect of putting that beneficiary over the asset or income thresholds, resulting in a disqualification or suspension of benefits. This disqualification or suspension of benefits might continue until the bequest to the disabled beneficiary is used up. Thus, such a request might not substantially assist the disabled beneficiary, and may not be the best use of the testator's resources.

There are a number of mechanisms or structures that can be put in place that would see to assisting a disabled beneficiary while not disqualifying that beneficiary from receiving the social assistance benefits. These include the use of a “Henson Trust”, or the gifting or bequesting of property that will not be included in the calculation of the disabled person’s assets. In this week’s blogs, I will discuss some of these mechanisms.

Have a great day.

Paul Trudelle