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Special Needs Planning: Knowledge is Power

As parents, we worry about our children: a truism that becomes even more true, and often extends to siblings, grandparents, aunts and uncles, when a child has special needs. We worry about what will happen to the special-needs individual, how they will care for themself and be cared for, and how we should plan for their future and leave them funds for their support and care, or just for a rainy day, without jeopardizing their independence or sources of government support. And when we look for information, online or from professionals, sometimes we end up not only worried, but also confused. And this can lead to paralysis and lack of planning.

Often the confusion arises from not understanding how the various available sources of assistance and planning tools apply. Ontario Disability Support Program (“ODSP”) benefits, Henson trusts, disability tax credits, qualified disability trusts–these things can be difficult to understand, and more difficult to fit together in an understandable whole. And it is important to understand how they fit together, so that a family can coordinate planning for a special-needs individual, since a lack of coordinated planning can have unintended and negative consequences for them. 

ODSP has strict limits on the assets and income a person receiving benefits from this program can have and receive. Certain assets, such as cash or investments (other than RESPs or RDSPs) of up to $5,000, are excluded when a person’s eligibility for program benefits is determined. Since the cash or investment threshold is so low, it is important that a person who is or might be eligible for ODSP benefits not receive any assets or funds directly from family members or their estates to avoid jeopardizing these benefits. This includes insurance or other inheritances (particularly if the amounts will be more than $100,000).

Fortunately, family members can plan for this issue by leaving funds in a special type of trust, called a Henson trust, which if properly drafted will allow funds to be used for the person’s benefit without being considered an asset for ODSP purposes. A Henson trust is essentially a fully-discretionary trust which has certain specific provisions to ensure it meets the necessary criteria to avoid inclusion as a person’s asset for ODSP purposes (for more information on discretionary trusts, see our client advisory “Using a Trust in Your Estate Plan”). As such, it can be used for any special-needs individual, whatever their need, to leave funds for their support and care without leaving them a lump-sum amount which they may not easily be able to manage. Any number of Henson trusts can be set up for an individual, both as current (inter vivos) trusts and through a Will (testamentary trusts): there is no limit on how many people can use one to leave funds for a particular special-needs person.

A Henson trust may or may not qualify as a “qualified disability trust”, which is a special type of trust under the Income Tax Act (Canada) for individuals who qualify for the disability tax credit. If a trust is a “qualified disability trust”, it will receive more favourable income tax treatment than if it does not. The criteria for qualified disability trusts are different from and in addition to those for Henson trusts, and only one trust that a special-needs individual is the beneficiary of can be a qualified disability trust for them. It is important to note that family members can leave multiple trusts, Henson trusts or otherwise, for a special-needs individual, but only one can be a “qualified disability trust” and thus access more favourable income tax treatment. Family members, and eventually trustees, will need to discuss and coordinate so that the most efficient outcome is available for the individual at the end of the day.

Henson trusts and qualified disability trusts are only two of several planning techniques available to families for special-needs individuals. It is important to plan ahead in a coordinated effort as a family, before any trusts are implemented or decisions are made, to ensure the best, most flexible plan for a particular individual’s own unique needs is put in place by all family members. In these cases, coordination is truly invaluable, and professional advice and information will help overcome “confusion paralysis” and give families the power of knowledge so they can successfully implement an efficient and effective plan.

— O’Sullivan Estate Lawyers

In our next post, we’ll discuss how estate planning is a multidisciplinary function, requiring a team approach.

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.