Disability Issues
Topics
Providing for special needs
children
Many Canadian families
include a disabled child or sibling. Sometimes the disability is physical, other times it is a
mental limitation. Whatever
the nature of the disability, the parents are the child's primary safety
net. During their
lifetimes, Mom and Dad provide the physical, emotional and financial
support so critical to the child's well being. Frequently the child lives with
the parents, who are in the best position to address the special
needs. Usually the parents
also assist the child monetarily.
The dilemma for parents is: When we
are no longer around, how will our disabled child be cared for and
protected?
Governments help and
hinder
While parents provide the principal protection, governments do
play an important role.
Each province has its own support legislation and program. In Ontario, the help is
delivered through the Ontario Disability Support Program (ODSP).
ODSP delivers a variety of valuable services to the disabled and
their families. The primary
benefit is through income support, providing up to $930 per month to
assist in housing, clothing and feeding the program clients. Other
important services include payment for dental work, eyeglasses and
hearing aids and prescription drugs, which alone can run to hundreds of
dollars each month.
ODSP has its drawbacks though. A disabled person is strictly
limited as to the amount of liquid assets he or she can have. The maximum is $5000, and this
includes not only bank accounts and investments, but also furnishings
and even moneys held in simple forms of trust. If this limit is exceeded, the
ODSP benefits cease.
Another significant restriction is that the disabled person
cannot receive more than $5000 in income from other sources for living
expenses, without in loss or reduction of ODSP benefits. This other income could be from
part time employment, or from investment or trust income, or financial
gifts from family members.
A disabled person trying to get by on $11,000 or less in ODSP
income will not have a very comfortable standard of living by any
measure. The predicament is
that if parents or family provide financial assistance beyond the $5000
limit to allow the disabled family member to live in a nicer home, or
eat better food, or dress in warmer clothing, then they risk the
reduction or loss of ODSP benefits for the
child.
While the parents are alive, they can usually find ways to
contribute without running foul of the ODSP, by supplying groceries from
time to time, or taking the child out to dinner, or buying a new winter
coat. The anxiety for
parents is, what happens when we are no longer alive? Who will then have the money or
the inclination to help the disabled child?
Don't expect the government
to do all that is needed.
The governments role in providing for the care of disabled adults
is much reduced. As the
Toronto Star noted in a recent investigative report, "No matter the age
of parent or child, there is a lack of funding, a lack of places to
live, a lack of support, a lack of options for Ontario's most vulnerable
citizens."
While government may increase its commitment to the disabled
community in the future, there is no question that the primary
responsibility for care giving and planning remains with the parents
today. Delay only increases
the difficulties for a disabled child's prospects. Partly this is because of the
length of time required to make safe alternative arrangements,
particularly for accommodation.
The same Star article reported that a there is a list of over
17,000 people waiting for support funding, group home placements or
daytime activity programs.
Those on the list may well wait for decades. In the final analysis, parents
must take the lead in providing for their disabled child, even after the
parent's death.
Wills may not
work
Parents usually provide for their children by leaving an
inheritance in their Wills.
That traditional approach can be counter-productive for a
disabled child. An outright
inheritance of more than $5000 paid to the child will at least interrupt
the ODSP, including the crucial prescription drug benefits. Even money left in a simple form
of trust for the disabled child can produce the same negative
result. Leaving an
inheritance of less than $5000 directly or in a simple trust will avoid
the ODSP cut off, but then the amount is so small it can't provide
significant or long lasting assistance.
Other parents, aware of this problem, choose to leave money to
one of the other children, and expect he or she will use that money to
assist the disabled sibling.
This may not be realistic or safe. There is no way the parent can
ever be sure that the money will be used for the intended purpose. Even if the sibling honestly
tries to use the money for the disabled child, the ODSP restrictions
still apply. As well, if
the able child runs into financial problems or goes bankrupt or suffers
a marriage breakdown, the money meant for the disabled child may end up
with creditors or divorcing in-laws.
Some parents are so discouraged by the planning difficulties they
simply leave the special needs child out of the Will, hoping that
government bureaucrats, family members and charitable organizations will
somehow work things out.
This approach just compounds the disabled child's challenges and
uncertainties. There is a
better way.
Absolute
Discretionary Trusts
The preferred solution for the disabled dilemma is a very special
form of trust technique, called an Absolute Discretionary Trust. The proper use of this type of
trust permits parents to provide financially for the support of the
disabled child, without adversely affecting the ODSP benefits. This trust is also known as a
Henson trust, named for Audrey Henson, a disabled woman from
Guelph. Her father's Will
was the first using this technique to be upheld in court.
With an Absolute Discretionary Trust in the parents' Wills, an
inheritance is left for the disabled child that can be relied upon to
assist the child for the rest of his or her lifetime, without affecting
the ODSP benefits. This
estate planning technique has many
advantages:
·
The child will not
be disentitled to ODSP benefits, even if the amount left in the Trust is
far more than the modest $5000 limit before disqualification. Tens, even hundreds of thousands
can be set aside from the estate for the disabled child's exclusive
benefit, without triggering ODSP
problems.
·
The disabled child's
income from the Trust for non-disability related expenses such as food,
clothing, housing and entertainment can be substantially supplemented,
to a maximum of $4000 per year, without suspending or affecting the ODSP
benefits.
·
The child may also
receive sums in addition to the $4000 for disability related
expenditures, such as assistive devices, education and medical
matters. For example, the
Trust could buy a $10,000 electric wheelchair for a physically disabled
child without risk.
·
The Trust money
remains available for the child as a safety net if the ODSP benefits
ceases in the future, because the program ends, or redefines his or her
eligibility.
·
When the child turns
65, the ODSP ceases and federal support can become available. Then the limitations on income
and capital from the Trust no longer apply, and the trust money is
available for the benefit of the ageing child without those arbitrary
restrictions.
·
If the child's needs
during his or her lifetime do not require the expenditure of all of the
trust assets, then after the child's death the remaining money can be
directed to surviving family members or charitable
organizations.
Help the child and save
taxes
The many benefits of this type of trust are
not limited to the parents' Wills, funded by the estate after their
death. An Absolute
Discretionary Trust can deliver important advantages while the parents
are alive.
An Absolute Discretionary Trust of
this type is particularly valuable if the parents have a significant
taxable income and already contribute financially to the child. If so, the help provided by the
parent is with after tax dollars.
This can be very inefficient. For example, a top marginal rate
father may earn $4000 from employment, pension or investments and want
to spend this on his disabled daughter. However, $1840 of the earnings
is diverted away from the family to the government in income tax. This leaves only $2160 available
for his daughter, barely half the amount he intended for her. This Dad will actually need to
earn over $7400 to have $4000 after tax to help his disabled
girl.
If the parent uses an
Absolute Discretionary Trust as the vehicle to provide financial
assistance to the disabled child, under the right circumstances no tax
is paid and all $4000 can be used for the child. As a bonus, the parents' income
tax is also reduced.
In some families, parents
establish an Absolute Discretionary Trust now, which results in more
money available for the child and less money scooped by the government
for tax. After the parents
have passed away and no longer need their assets for their own support,
the Wills direct more money into the Trust to help the child for the
rest of his or her life.
Depending upon the size of the estate, it may even be possible to
provide for a nest egg sufficient to release the child from ODSP
rules. Then the disabled
child will enjoy a higher quality of life, without the arbitrary
limitations and restrictions.
Don't be mislead. An Absolute Discretionary Trust is not
a magic wand that makes all of the problems of a disabled child
disappear. It is a sophisticated legal tool ensuring that financial
means are available to provide for the housing, clothing, food and other
needs for the child's lifetime, while retaining all available government
support.
"What should I do
now?"
Consult
an estate planning lawyer
If you have a disabled child in your family, the essential first
step is to find out more about Absolute Discretionary Trusts. They are complicated legal
techniques, and require expert assistance from an estate planning lawyer
to set up. Once they are in
place, however, there may be no substantial continuing costs to
operate. The lawyer will assist you to analyze
your resources and the child's financial and other needs, then recommend
the appropriate approaches to maximize the benefits.
Take advantage of financial planning
You may feel that your resources are
not sufficient to provide for your disabled child's future. A professional financial planner
may change your mind. The
sale proceeds of your house after your death may be the key. A joint and last survivor life
insurance policy may be affordable and provide the needed funds. A new insurance product called
an estate bond could be the answer. There are also special tax exemptions in some circumstances
permitting the unused portion of your RRSP or RRIF to be directed to the
disabled child, without loss of capital due to income tax upon your
death.
Consider the big
picture Financial security has to be the
fundamental focus, but the big picture includes much more. Many other
issues remain to be addressed by parents for the continued care of their
child. These include planning for safe and
appropriate residential accommodation, the choice of capable and honest
trustees to handle the administration of the trust, and arranging for
caring individuals to ensure that the disabled child's personal needs
are met when the parents are no longer available to do
so.
Start soon It's neither safe for the child nor fair to the parent
to delay the start of the planning process. The parents' increasing age
and decreasing health may make an already complicated duty much more
demanding. An unexpected
incapacity or untimely death will rule out the parents' involvement and
squander the disabled child's last, best chance for future
security. Another good
reason to start the process soon is that then time is available to ease
the transition from direct parent involvement. This will reduce the stress of
change for the disabled child and advance the learning curve for whoever
will eventually fulfil the parents' role.
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