How do you plan for the future of a disabled child?

How do you plan for the future of a disabled child? There is a significant challenge with respect to estate planning for the benefit of dependents who are disabled. Leaving assets directly to them could adversely affect their eligibility for disability benefits and extended medical coverage.

A key factor is knowing your child – you must make an attempt at estimating the financial requirements by considering the following – where will the child reside on your passing? How much day-to-day support will they need? Will they ever be able to work?

It’s also imperative that you become familiar with the government programs and benefits available for a dependent child – both provincially and federally.

Having this knowledge at hand, you can then begin to plan how to structure the inheritance for this child or children. One of the most common ways is by way of a “TRUST”.

A trust is a legally binding agreement whereby a “settlor” transfers control to a “trustee” in order to manage and administer assets. Assets can include money, property and other possessions.

There are basically two types of trusts: a) discretionary and b) non-discretionary.

If you are the beneficiary of a discretionary trust, you have no control over the assets held in the trust. It is at the sole discretion of the trustee as to how funds are to be paid – whether they are paid directly to the beneficiary, or whether the funds are spent on behalf of the beneficiary, such as for medical aids, caregiver services, education, or even renovations to a property. There is no limit to the amount of assets you can place in this type of trust, therefore, it is imperative to appoint a trustee who knows the disabled child well and who understands and supports that child’s needs and lifestyle.

With a non-discretionary trust, the beneficiary either has some control as to how funds or assets are paid, or it may be that the Trustee is given explicit direction as to how much is paid out to the beneficiary at any given time. In the case of a non-discretionary trust, the asset cannot exceed $100,000 without affecting disability benefits.

Whether you have a discretionary or non-discretionary trust, any payments made to a beneficiary who is receiving disability assistance, will be deemed “unearned income” and this could result in a reduction of benefits to the beneficiary or outright disqualification. Depending on the amount paid to the beneficiary, the beneficiary may have a reduction for a month or several months and/or the beneficiary may have to apply again to qualify for the benefits.

A trust may be set up in a few different ways: a) inter vivos or b) testamentary. An inter vivos trust is created when the person establishing the trust (the settlor) is still alive. A testamentary trust is created through a person’s Last Will and Testament.

Should one look at an inter vivos trust or testamentary trust? There are a number of factors that play a part in that determination: what is the nature of the disability? What are the needs of the disabled beneficiary? What is the amount of the trust?

If this is something you would like to explore further, call to make an appointment.