Inheritances for 'disabled'

If you leave money or assets to a loved ones with disabilities, be sure to consider how that might impact their other financial resources, such as social assistance benefits.

Due to the volume of information to consider here, even a non-comprehensive summary won’t fit in one column, so I am going to split this topic up over the next two weeks.

This week, I wanted to start by explaining Henson Trusts.

Every province and territory has its own specific laws and regulations addressing social assistance and support programs, and most have programs directed solely at persons with disabilities.

The benefits provided can include a monthly stipend, specialized or subsidized housing, and/or medical benefits.

In order to qualify to receive this assistance, the person must show that he or she is “disabled,” and that he or she is in “need,” as defined in the applicable legislation.

In general, a person will not be considered in “need,” and therefore will not be eligible to receive disability social assistance, unless the person meets certain asset and/or income tests.

If the person inherits a significant sum of money directly (as opposed to indirectly, as a beneficiary of a trust), the inheritance could disqualify the person from continued assistance.

In most provinces and territories, if an inheritance is payable to a trust instead of directly to that person, and the terms of the trust are sufficiently “discretionary,” the assets will not be deemed assets of the person, and so will not affect his or her entitlement to government social assistance programs.

The trust may also be permitted to distribute up to certain annual amounts to the beneficiary without those distributions counting against his or her income limit.

As a result, if one of your intended beneficiaries is receiving social assistance benefits, it is usually best to leave assets to him or her through a fully discretionary trust, sometimes referred to as a Henson trust, instead of leaving assets directly to him or her.

This is a type of trust where the trustee (as designated in your will) manages the assets for the benefit of the beneficiary, but the assets are not legally owned by the beneficiary, and the trustee has the complete discretion to determine if, when and how much should be distributed to the beneficiary at any given time.

Even if the beneficiary is not currently receiving (and does not in future expect to receive) social assistance benefits or resides in a province or territory where discretionary trusts do not provide significant protection from an asset and/or income-test, there may be other reasons to use a discretionary trust for that person’s inheritance.

For example, if you want to leave assets to a beneficiary who is a minor, mentally impaired, or financially irresponsible, then using a trust will allow you to appoint someone who will manage that inheritance.

If the person is very dependent on caregivers, he or she might be vulnerable to financial abuse; appointing a trustee to manage their inheritance may help to reduce instances of financial abuse.

Further, using a discretionary trust may protect the assets within the trust from claims by a creditor or separated spouse.

The trustee of the Henson trust does not have to be the same person that you appointed as executor or liquidator of your will, but it can be.

Either way, remember that the trust is designed to last for the lifetime of the primary beneficiary – this could be several decades.

When appointing the trustee of this trust, you should consider appointing alternate trustees, in case the person you chose as primary trustee dies, resigns, or loses capacity before the trust has been wound up.

The persons you choose as primary and alternate trustees should be:

• Mentally capable adults who are willing and able to act
• Trustworthy
• Have a relationship with the primary beneficiary or are willing to develop that relationship.

Ideally, the trustees should reside in the same province or territory as the primary beneficiary.

As mentioned above, this summary is by no means comprehensive and there are many additional details to consider before building a Henson Trust into your estate plans. Speak to a professional to see if this option is right for you.

And stay tuned for next week’s column where I’ll discuss a few other options to also consider.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.