Maintaining a reasonable standard of living on ODSP is next to impossible. Some ODSP recipients are fortunate to have parents, siblings, or other relatives who are willing to help out, financially.
While an aunt, uncle or grandparent may be ready to help, giving money to somebody on ODSP without understanding the program’s guidelines can jeopardize the government benefit they are trying to supplement, unless it is done thoughtfully.
ODSP recipients are allowed to receive up to $6,000 from other sources during a 12 month period, including gifts, but they are not allowed to have more than $5,000 in non-exempt assets at any one time. Gifts of cash, investments or other assets not managed thoughtfully, have caused people to lose their ODSP coverage. The rules are confusing, but not following them could result in even greater financial hardship.
As an example, a grandparent has bequeathed $75,000 to his grandson who is 25 years old, lives on his own and is on ODSP. This money far exceeds the asset limits set out by ODSP. The amount is reported to ODSP who halt his monthly payments until he either spends the money or moves it into an exempt asset. Meanwhile, the money may have been put to better use if it were given to the parents to dispense to their son over time in order to maintain and supplement his ODSP. Once the money is given to him, he is not able to simply give it to his parents and expect his ODSP to be reinstated, because ODSP insists assets can’t be given away or sold off at less than fair market value.
Some ODSP recipients facing this type of predicament end up spending all the money they are given until their assets are back in line with ODSP restrictions. In our example, the grandson would spend all or almost all the money given to him by his relative before he could be reconsidered for ODSP. Keep in mind he not only loses his monthly ODSP benefit, but also the health and dental benefits as well. If he relies upon prescription medication, he will have to pay for that out of his own pocket. In the end, the $75,000 was more a curse than a blessing.
If your child is on ODSP, it is a good idea to let people know they should not gift any money or other assets to him or her without discussing it with you first. This preventative measure provides you with an opportunity facilitate the gift so it supplements ODSP income, not end it.
In the event money or assets are gifted, there are strategies to deal with the situation, in most cases. There may be a major expense that ODSP accepts as exempt, such as renovations to a residence to accommodate the person’s disability. It could be used to purchase a primary vehicle. Or it could be used to purchase a different piece of equipment needed as a result of the person’s disability.
The challenge comes if you do not want the money to be spent right away. Rather than spend the money, it can be moved into an “exempt” investment. Exempt investments include the RDSP. All the money could be moved into the person’s RDSP account to safeguard ODSP. However, that may not be the wisest move, especially if you are not prepared to wait years to utilize the money. If the amount of money is less than $100,000, it can be used to purchase a segregated fund – an insurance investment product that acts much like a mutual fund and does not have the same withdrawal restrictions as an RDSP.
One strategy is to put the majority of the money into the segregated and then withdraw the requisite amount to fund the RDSP account on an annual basis in order to maximize the government contributions. Then the remaining funds in the segregated fun can be used to supplement ODSP income in a thoughtful and cautious manner.
It is wise to consult a financial professional who understands ODSP rules and regulations before taking action.