Clients often ask what can be done if their son or daughter with a disability expects to inherit from an older family member. For example, a grandparent wants to provide a token gift to all of the grandchildren or an aunt who has no children of her own decides to leave her entire estate to a niece with a disability.
If the child is receiving Ontario Disability Pension Plan (ODSP) benefits, having an inheritance left to the child could result in the loss of ODSP benefits. Unless the inheritance is so large that the child could manage without ODSP, consideration should be given to the options listed below (in no particular order). To make the options easier to understand, in these examples I refer to the elderly relative as ‘Aunt Bessie’ and to the child with a disability as ‘Vanessa’.
- Aunt Bessie could include a Henson trust in her Will so that Vanessa’s share of the estate can be held in trust and not affect Vanessa’s ODSP benefits.
- Aunt Bessie could direct in her Will that on her death, Vanessa’s share is to be deposited into Vanessa’s registered disability savings plan (RDSP) if she has one. However, there are limits on how much can be deposited to an RDSP.
- Aunt Bessie could limit Vanessa’s gift to no more than $10,000. As long as Vanessa has no other income from any source, this amount should not affect her ODSP benefits.
- If Vanessa’s share of Aunt Bessie’s estate is less than $100,000 but more than $10,000, Aunt Bessie could include a gift for Vanessa in her Will without including a Henson trust. This might be the only option if Aunt Bessie has a Will but has become mentally incapable since signing it. If mentally incapable, she cannot change it. Upon Aunt Bessie’s death and assuming that Vanessa is still receiving ODSP benefits, a specific kind of trust could be set up at that time. This type of trust must comply with certain strict rules including a $100,000 asset limit. There are legal fees to create this type of trust which usually exceed the cost of drafting a Henson trust in Aunt Bessie’s Will.
- Aunt Bessie could remove Vanessa from her Will.
A Secret Trust — Inexpensive (maybe!) but Highly Problematic
Another option that some families adopt is not one that I recommend as there are so many problems associated with this option. However, as I often hear that families are doing this, it is important to mention it here and discuss the pros and cons. Again, I will use Aunt Bessie and Vanessa for ease of illustration.
Aunt Bessie leaves Vanessa out of her Will. However, Aunt Bessie leaves a larger portion of her estate to Vanessa’s brother, Brian, and asks Brian to promise that when Aunt Bessie dies, Brian will use the extra money for Vanessa. Aunt Bessie trusts Brian and is sure he will do the right thing after Aunt Bessie’s death. This is often referred to as a ‘secret trust’. It is highly problematic for a number of reasons:
- If Brian, the secret trustee, dies before Aunt Bessie and she is unable to change her Will, it may not be clear what happens to Vanessa’s inheritance.
- If Brian dies after Aunt Bessie but before Vanessa’s inheritance is spent on Vanessa and if no one knows about Aunt Bessie’s intentions, Vanessa’s inheritance becomes part of Brian’s estate and Vanessa could get nothing.
- If Vanessa’s inheritance from Aunt Bessie is large enough, Brian may have to report and pay taxes on the income that Vanessa’s inheritance earns.
- Vanessa likely has no claim against Brian if he mishandles the money or if Vanessa needs it and Brian won’t or can’t (due to illness) pay it to or for Vanessa.
- If Brian is involved in a lawsuit or goes bankrupt, Vanessa’s money is available to settle the lawsuit or to satisfy creditor’s claims.
- If Brian’s marriage breaks up, his ex could make a claim against Vanessa’s money as it appears to belong to Brian.
Reproduction of this blog is permitted if the author is credited. If you have questions or if you would like more information, please call us at 613 836-9915. This blog is not intended to be legal advice but contains general information. Please consult a lawyer or other professional to determine how the information in this blog might apply to you.
Blog posts pre-dated December 1, 2015 were originally published under Neff Law Office Professional Corporation.
