Disability Trusts and Estate Planning for Dependents with Disabilities and Special Needs
A trust is an arrangement where a person (the “trustee”) holds the money for the exclusive use or benefit of another (the “beneficiary”), at the request of a person who wishes to establish the trust (the “settlor”). Courts in Canada have determined that money held in a discretionary trust is not an asset for purposes of determining eligibility for receiving disability assistance. Money held in a discretionary trust allows people with disabilities to continue to receive provincial assistance.
Trusts can be Testamentary (made through a will) or Inter vivos (meaning a living trust – a trust set up while the settlor is still alive). For a living trust, it can be a revocable living trust, or a non-revocable living trust.
How Does a Disability Trust Work?
How trusts can be of assistance:
- if the person with a disability is not on disability benefits, but has difficulty managing their money (a “spend-thrift trust fund”);
- if you are worried that the person with a disability might be exploited by a spouse or a “friend” (a “discretionary trust fund”);
- if the person is capable of managing their own money but have received too much to qualify for disability benefits (a “nondiscretionary trust fund”);
- to avoid Wills Variation Act challenges;
- to ensure that several children benefit from an estate but that the bulk of the money is left to support the person with a disability;
The Voice of CP of Greater Vancouver have recently put together a useful manual on trusts and disability benefits. Click here for a copy.
What is the Disability Tax Credit?
The Disability Tax Credit (DTC) is a federal program designed to reduce the income tax burden that qualified individuals pay. The tax credit provides relief to individuals who, due to the effects of a severe and prolonged mental or physical impairment, are restricted in their ability to perform a basic activity of daily living as certified by a qualified health practitioner.
To qualify for the Disability Tax Credit an individual must have a severe and prolonged (continuous period of at least 12 months) impairment as defined by the Income Tax Act. A principle benefit of obtaining the DTC is that qualified individuals who do not benefit from the disability tax credit because of insufficient federal tax liability (due primarily to low income), but who are eligible on the basis of disability, may transfer all or part of the credit to a supporting person. This supporting person includes a spouse or common-law partner, or a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, nephew or niece of the individual. The tax credit may be allocated retroactively for up to 10 years. If this tax credit is allocated to a supporting person with a relatively high taxable income, and has not been claimed previously, the individual claiming the deduction may be eligible for up to a $30,000 disability tax refunds from the government.
What is a Registered Disability Savings Plan? (RDSP)
The RDSP is a long-term savings program for people with disabilities and their families. If an individual qualifies for an RDSP, the savings and payments are considered exempt assets and income. One of the principal benefits of an RDSP is the significant grants and bonds the federal government will contribute to a person’s plan.
The Canada Disability Savings Grant (CDSG) eligibility is an income tested benefit with the grant ranging from 100% to 300% of the beneficiary’s annual contribution to a maximum of $3,500 per year. Individuals may also qualify for the Canadian Disability Savings Bond (CDSB) of $1,000 per year, even if the beneficiary makes no contributions to their RDSP. Both the grant and bond have individual lifetime limits, but allow a qualified individual to receive as much as $70,000 in government funding.
- assisting people with disabilities in making wills;
- enhanced representation agreements and enduring powers of attorney;
- maintaining independence with representation agreements;
- applying for court appointed decision-makers or “committees”;
- avoiding the intervention of the Public Trustee and Guardian;
- creating solutions for home ownership for persons with disabilities.