Planning for Disabled Beneficiaries

Over 27% of Canadians aged 15 and over identify as having a disability.  Disability rates are increasing fastest in working age, or soon to be working age, demographics.

Proper estate planning is essential for individuals who are planning to provide for a disabled beneficiary. Depending on the nature of the disability – whether it be a physical or cognitive limitation – various planning techniques may be used for a disabled beneficiary, to protect their inheritance, assist with spending and decision-making, and minimize risks for vulnerable adults who may otherwise be subject to undue influence. Proper legal advice from a lawyer well-versed in disability law is essential.

Defining Disability

The Accessible Canada Act states broadly that a disability is “any impairment, including a physical mental, intellectual, cognitive, learning, communication or sensory impairment – or functional limitation – whether permanent, temporary or episodic in nature, or evident or not, that in interaction with a barrier, hinders a person’s full and equal participation in society.”

In British Columbia, provincial government assistance is available for individuals who meet the criteria of being a person with a disability (“PWD”) under the Employment and Assistance for Persons with Disabilities Act and Regulation. A PWD is a person who has a severe impairment that affects the activities of daily living that will last at least two years.

Options for Planning

In order to ensure that the PWD remains eligible to receive their monthly disability assistance, there are both income and asset tests which will be applied by the provincial government. The Regulations provide that a person cannot have assets with a total value of more than $100,000. There are exceptions to the $100,000, which the PWD may have, including a home, a vehicle, a Registered Disability Savings Plan (RDSP), a Registered Education Savings Plan (RESP) and assets held in trust.

If a disabled beneficiary is likely to receive an inheritance of $100,000 or more, it is strongly recommended that the will-maker (formerly called the testator) create a testamentary trust (that is, a trust created in the will) to hold the assets in trust for the disabled beneficiary, so that the Ministry will not consider the inheritance to be an asset of the PWD. This type of trust goes by several names – a Henson trust, a fully discretionary trust or a disability trust. All of these are different terms for the same concept. The idea is that the trust itself holds the inheritance for the benefit of the disabled beneficiary, but that the disabled beneficiary does not control the funds (the trust assets); it is the trustee of the trust who has discretion to pay as much or as little of the trust funds to the disabled beneficiary. Because the disabled beneficiary does not control the funds, the Ministry does not view it as an asset of the disabled beneficiary.

Before meeting with your estate lawyer to create a discretionary trust, consider the following questions:

·         Who will be the trustee of the disabled beneficiary’s trust? Will it be the executor of your Will, or someone else? Who will the alternate trustee if the original trustee is unwilling or unable? The trustee will have an ongoing and important role in the life of the disabled beneficiary, so it worthwhile being very thoughtful about who you appoint to this role.

·         Is the trustee entitled to a fee for administering the trust?

·         Who will the money in the trust be paid to if the disabled beneficiary dies before the trust funds are used up?

What if the Will doesn’t have a Discretionary Trust?

Depending on the nature of the disability and the capacity of the disabled beneficiary, the beneficiary may have the option of instructing a lawyer to create an inter vivos (as opposed to testamentary) disability trust.

A PWD who receives assets from an inheritance or other means that exceeds $100,000 may create either an inter vivos discretionary trust (much like the testamentary discretionary trust described earlier), or may create an inter vivos non-discretionary trust, which allows the beneficiary to have more control over the manner in which the money is spent. The non-discretionary trust has a capital contribution limit of $200,000 unless special consent is obtained from the Ministry, whereas the fully discretionary trust has no capital contribution limit.

Resources

There are many excellent resources out there for people with disabilities and those who love and care for them.

• Disability Alliance BC: DABC (disabilityalliancebc.org)

• PLAN Institute: Empowering people with disabilities to lead a good life (planinstitute.ca)

• Ask An Advocate: Homepage - Ask an Advocate

Most importantly, ensure that any lawyer you consult with regard to this type of planning is knowledgeable and experienced in planning for those with disabilities.

Contact Us

Contact our office for professional guidance tailored to your specific situation.

Written by Emily Anderson, Albert & Co. Law LLP, December 3, 2024.

© Albert & Co. Law LLP. The contents of this article do not constitute legal advice. Readers should seek legal advice in relation to their own specific circumstances.