Money Tips > Winter 2011

Leaving a legacy for a disabled dependant – what are the options?

Ensuring that your loved ones are cared for is important to anyone, but when your loved ones’ needs are specialized, it brings about a few additional challenges and concerns.

If you are looking to leave part or all of your estate to a disabled family member, it’s worthwhile exploring the available options. Sadly, many families discover too late that money or assets which have been set aside through a will to help provide for a disabled family member can, in fact, create additional problems for that beneficiary.

Protecting social assistance benefits

Every province and territory in Canada provides financial support to disabled adults who:

  • Cannot earn a living because of disability;
  • Have “assets” below certain thresholds, and
  • Have “income” below certain thresholds.

Depending on the province or territory you are in, the level of support available will vary and the definitions of “assets” and “income” will vary.

If your disabled loved one is receiving social assistance benefits, you won’t want their benefits to be cut off because of an inheritance received from you. In most provinces and territories, this is best accomplished by ensuring that the money intended for the disabled person flows into your estate (don’t use beneficiary designations or joint tenancy!), and then creating a discretionary “Henson” trust for the disabled person in your will. What this means is that a third party of your choosing will be the legal owner or trustee of the property, and have the discretion to decide if, when and how much to distribute to the disabled person at any given time. In most provinces and territories, the funds in a Henson trust will not count as “assets” to the disabled person, and distributions up to certain values will not count as “income”.

Registered Disability Savings Plans (RDSPs)

Sadly, many families discover too late that money or assets which have been set aside through a will to help provide for a disabled family member can, in fact, create additional problems for that beneficiary.

An RDSP is a long-term savings vehicle that allows a person eligible for the federal disability tax credit to accumulate up to $200,000 in contributions on a tax-deferred basis. The Government of Canada may also contribute to the RDSP as with the Canada Disability Savings Grant (CDSG) and/or the Canada Disability Savings Bond (CDSB); eligibility is dependent in part on family net income and beneficiary age. Contributions to an RDSP are not generally deductible, and a large lump sum contribution will generally receive less CDSG than smaller annual contributions would have received.

Withdrawals from the RDSP generally cause an immediate repayment or “clawback” of all CDSG and CDSB received by the plan within the 10 prior years, which is one reason why RDSPs should be used for long-term rather than short-term savings.

Finally, most social assistance programs exempt RDSPs and RDSP withdrawals from their “asset” and “income” tests. Your disabled loved one may wish to establish an RDSP today, to which you can contribute now, as well as after your death.

Estate planning can be tricky, but when you have the needs of a disabled loved one to consider, it can be even more challenging. We are there with the right services and advice to help you plan for a secure future. Call us today.

© iStockphoto.com/Andres Balcazar