How much should I give to each member of my family?
If you have children and one (or more) of your children has a disability, you may want to reconsider dividing your estate evenly between them and carefully analyzing your family’s situation before providing any instructions for the division of your estate. The following factors may be useful in determining how to divide your estate:
- The size of your estate;
- The needs of all of your children/ Beneficiaries and their expectations and dependence on you;
- The age, health, and support needs of your son or daughter with a disability;
- Other sources of support or income for which your son or daughter is eligible, and any potential changes to that income or support;
- Eligibility for the Disability Tax Credit;
- Your son or daughter’s RDSP savings, if any;
- Your son or daughter’s total expenses (current and projected);
- Your son or daughter’s customary standard of living with your support; and
- Your son or daughter’s place of residence and long-term residential needs.
Based on these considerations, you may feel that an equal share to your child with a disability may be too little, or that your entire estate is not sufficient. Be assured this is not uncommon – in fact, given the uncertainties around your son or daughter’s changing needs, how long he or she will need financial support, and the availability of government benefits, many people are very concerned that even if they leave everything they have to their son or daughter with a disability, it simply may not be enough. It is vital that the funds you leave for your son or daughter (usually in a Henson Trust or other ODSP exempt form) are managed appropriately, tax planning is undertaken, and their eligibility for government benefits and income supports are maximized.
Can I leave my estate (or part of it) to my minor child or grandchild?
In addition to your child with a disability, you likely have other Beneficiaries that may need some additional planning. If you have children or grandchildren who are minors or very young adults, you may have some concerns about leaving them a substantial share of your estate. Unless you expressly provide otherwise in your Will, a gift to a minor will be paid directly to him or her in full when he or she turns eighteen (18), and then it is up to him or her to decide how to spend it, whether it be on post-secondary education, or less tangible and potentially more harmful pursuits.
The other concern with leaving a share of your estate to a minor directly is that, unless you provide otherwise, the share for that person will have to be paid into court, and consultation with the child’s lawyer (a government office) may be required for the minor to receive any share of the inheritance prior to his or her attaining the age of eighteen (18).
The use of a Staged Trust in your Will allows payments from a young person’s inheritance to be paid out for them at intervals until they reach the age at which you feel he or she will have the maturity to handle the inheritance appropriately. This might be age 21, 25, 30, or even older depending on your desires and impressions of the person’s maturity.
Can I leave my estate (or part of it) to my loved one with a disability?
After you determine the needs of your child with a disability are and how large a share of your estate you will leave to him or her, the next step is to plan what form that share will take. This will depend largely on your child’s capacity to manage property, eligibility for the Disability Tax Credit, and dependence on Ontario Disability Support Program (ODSP) benefits.
There are a number of eligibility requirements for ODSP-related benefits to the extent of a person’s disability and his or her financial situation. The most important factor when it comes to deciding how to provide an inheritance to a person with a disability is the asset restriction. The current asset limit for an individual is $40,000 (and for a couple, it is $50,000). This means that if you give your son or daughter an inheritance in his or her own name that is not in compliance with the asset restrictions, he or she will not be eligible for ODSP.
Some families learn about this restriction and mistakenly believe that their only option is to leave their son or daughter with a disability nothing at all (or a small gift under the asset limit) and trust in the good faith and honesty of their other children to provide for their son or daughter with a disability. This option is fraught with risks.
In addition, even if you believe that your son or daughter’s ODSP earnings are sufficient to meet his or her needs now, there is always the risk that these needs and/or eligibility for ODSP benefits may change in the future. There are a number of alternatives that provide greater flexibility to meet your son or daughter’s changing needs. Depending on your son or daughter’s situation, the alternatives may include:
(A) OUTRIGHT GIFT
In some cases, it may be acceptable to leave an inheritance to your son or daughter directly. For instance, where the share is small, your son or daughter is capable of managing property, and/or is not eligible for ODSP, an outright gift allowing the person to determine how to manage their inheritance may be possible. Indeed, due to the ongoing costs and reporting requirements associated with operating a Trust, in some cases, this alternative may make sense. Careful consideration should be given and professional advice obtained before taking this step.
Where an outright gift is made and your son or daughter has the capacity to manage property but is in jeopardy of losing his or her ODSP as the result of an outright gift from you or another person, there are some options for ensuring continuing ODSP eligibility, including transferring the inheritance into an Inheritance Trust, an RDSP, a Segregated Fund, or other exempt asset. These options have a number of restrictions and, unfortunately, there is usually some temporary loss of ODSP benefits involved.
(B) GIFT TO HENSON TRUST
Leaving an inheritance for a son or daughter with a disability to a Henson Trust is perhaps the most common practice for parents who are informed and engaged in appropriate estate planning. Briefly, an Absolute Discretionary Trust (more commonly known as a Henson Trust) is a special type of Trust in which the Trustees (i.e., the people who hold the inheritance for the benefit of your son or daughter with a disability) have absolute discretion as to what, if any, share of capital or income of the Trust they will pay out to the Beneficiary. Absolute discretion on the part of the Trustee is the key feature, which prevents the inheritance paid into the Trust from putting your son or daughter with a disability offside with the ODSP asset restrictions.
(C) REGISTERED DISABILITY SAVINGS PLAN (RDSP)
An RDSP is a long-term savings vehicle established by the federal government as a way for individuals who have a disability and their families to promote long-term financial security for persons who have a disability. If your son or daughter is eligible for the Disability Tax Credit (DTC), you may, on your death, rollover all or a portion of your RRSPs, RRIFs, or LRIFs to your son or daughter’s RDSP on a tax-deferred basis, the same way you would roll over registered plans to your surviving spouse’s plan. The tax savings that this rollover offers can be very significant. There are some restrictions that apply to this rollover, but on the whole this is a very valuable option that you should discuss with your Estate Planning professionals.
(D) LIFETIME BENEFIT TRUST
A Lifetime Benefit Trust (LBT) is a little-known tax savings vehicle that has benefits similar to an RDSP. Simply put, the Income Tax Act allows you to rollover your RRSP, RRIF, and LRIF assets on a tax-deferred basis to an LBT. The LBT must use the entire rolled over amount to purchase a qualifying annuity, the proceeds of which may be paid directly to your son or daughter or held in the LBT for the benefit of him or her. There are a number of restrictions and requirements for a Trust to qualify as an LBT, and you should speak with your Estate Planning professionals to learn more about this option.
(E) EXEMPT ASSETS
You may also choose to leave your son or daughter an ODSP exempt asset directly as part of his or her share of your estate (see section on ODSP and Social Assistance.) If you are considering this option, you should take into account, amongst other things, the following issues:
- Your son or daughter’s capacity to manage property;
- The cost of maintaining the asset (i.e., property tax, insurance, hydro, gas, up-keep, and repairs, etc.);
- The availability of liquid assets to support your son or daughter outside of the exempt asset (i.e., if a residential property forms the majority of his or her share of your estate, will there be sufficient liquid assets remaining in his or her share to maintain both your son or daughter and the property?);
- The possibility that the asset will need to be sold and what will happen to any proceeds (i.e., if your son or daughter finds that he or she cannot manage a property and chooses to rent a home, then the proceeds of the sale will be liquid assets in your son or daughter’s own name); and/or
- The impact of any such proceeds on your son or daughter’s eligibility for ODSP (if he or she is unable to transfer the entire amount of the proceeds of sale into an RDSP or other exempt asset, then the proceeds will likely affect his or her continuing eligibility for ODSP).
Does an Estate Trustee get paid?
- Reasonable compensation: Unless you expressly prescribe the manner in which your Estate Trustees may take compensation, it will be awarded by the Court in accordance with the Trustee Act. That Act allows Estate Trustees to take “reasonable compensation” for their efforts and time, as approved by the Courts.
- Fixed Compensation: In the alternative, you can specifically fix the compensation your Estate Trustees will receive in your Will, either as a lump sum payment, or as a percentage of your assets, or any other arrangement you believe will be fair or appropriate. If you choose to go this route, it is important to keep in mind that Estate Trustee compensation is taxed as income to the Estate Trustee, whereas a bequest in your Will is not. Keep this in mind when deciding what, if any, compensation to allow your Estate Trustees.
- Intermittent compensation: It is important to note that unless you provide otherwise, your Estate Trustees will not be permitted to receive any compensation until your estate has been fully administered. The reality is that an estate administration can take a significant amount of time to administer – in some cases 10 years or more. An Estate Trustee may have to commit a huge amount of time to the administration over that period, potentially to the detriment of his or her own earning potential. Allowing for intermittent compensation under your Will is one way of ensuring that your Estate Trustees are compensated on a timely basis for their efforts.
- No compensation/Expense Reimbursement: Depending on your relationship to your Estate Trustees, you may decide that no compensation is appropriate and only expense reimbursement should be granted. You can certainly provide for that restriction in your Will.