Inheriting money can be a mixed blessing, even for those on ODSP.
Your mother passes away and, to add to the grief and stress, you find out she left you $95,000 in an inheritance. If you are receiving benefits from the Ontario Disability Support Program, you know you are not allowed to have more than $40,000 in assets. With an inheritance close to $100,000 your ODSP is seriously jeopardized. Not only could you lose the monthly income support you have come to rely upon, but also the health benefits it provides as well.
There isn’t a week that goes by where I don’t receive calls from people dealing with this situation. They are thankful for the money, but not if it costs them their ODSP benefits. What is worse, many have been told by their ODSP caseworkers they will lose their ODSP until they spend all the inheritance money. The worst calls are the ones who find me after they spent all the money.
There are options. You might be able to put your inheritance into a Registered Disability Savings Plan (RDSP), that is if you qualify for an RDSP. If you do have an RDSP, you can contribute up to $200,000 into it over your lifetime. Only problem is you may not be able to touch the money without penalties for many years to come. It can be very easy to put money into an RDSP; taking it out is an entirely different story.
You also have the option of putting up to $100,000 from an inheritance or a life insurance policy into a trust. This can be a really good option, especially for people on ODSP who do not have the capacity to manage their own money. A trust allows a third party trustee to manage the assets in the trust on behalf of the beneficiary who may have a developmental or intellectual disability.
A trust is less attractive if you are able to manage your own money, because you have to involve a trustee when you really just want to manage it on your own. On top of that, you may not want to swallow the legal fees you will need to cover to have the trust set up in the first place.
A lesser known solution is opening a segregated fund account. Segregated funds are sold exclusively by insurance companies and, to make a long story short, people are allowed to have as much as $100,000 in segregated funds without affecting their ODSP eligibility. Not only will a segregated fund account protect your ODSP, it will also cost you far less to set it up than a trust and you can access the money at your discretion, unlike the RDSP.
Simply because you are on ODSP, does not mean you have to spend down an inheritance to maintain your benefits.
My grandfather left me $78,000 and I am on ODSP. I haven’t received the money yet, but I have been worried sick about losing my ODSP. My prescription drug costs are almost $800 a month. So without ODSP, I would have to cover that cost myself. I read your article and talked to my ODSP worker about it. He said he never heard of segregated funds. What am I supposed to believe?
Thanks for the comment, Kevin. Unfortunately, ODSP is a really complex program. So complex, you can’t realistically expect even your worker to understand it all. ODSP policy 4.8 clearly identifies segregated funds as an exempt asset. I have many clients on ODSP who, after depositing money into a segregated fund account with me, present their ODSP worker with a printed copy of policy 4.8. Once that is done, not one of my clients have lost their ODSP because of their segregated fund account.
My parents are nearing the end of their lives and I (daughter) have recently been given POA. I have 1 disabled sister who lives in a home that my parents own and maintain (not my parents principle residence). My sister is on ODSP due to intellectual disability. My parents ‘Will’ leaves this 2nd home to my sister along with money (~$300,000). My parents believe they are providing for my sister’s future. From what I have researched so far, this inheritance will only hurt my sister’s future and she will lose her ODSP and medical benefits because of inheritance. I believe I need my parents to change their Will so this does not happen and I can help my sister in future with my parents assets. Should I have the Will put monies into a Trust then with me as administrator? Thank you so much in advance.
I agree with your concerns. Inheriting the home in and of itself would not compromise her eligibility for ODSP as long as it remains her primary residence. However, since it is not your parents’ primary residence, I expect there could be a significant capital gains tax to be paid.
But the more pressing issue is the $300,000. If your sister receives this amount outright, in her name, it would render her ineligible for ODSP. Depending on several factors, there may be strategies to remedy this problem after the fact, but, in most cases, it is far better take advantage of estate planning strategies that help to safeguard her eligibility. A trust, specifically a Henson Trust, is worth considering. To answer your question, you really need to consult with a professional who has relevant estate planning experience and understands ODSP. At the very least, I think your parents should review their wills with the right professional.
Oh thank you so very much. I was unsure if this 2nd home was an exempt asset or not but knew the cash was a big issue re loss of her ODSP and benefits. And yes we will seek planning advice including the capital gain issue too. Again thank you for this service – it tells me which path to get on re my parents estate planning.
You’re most welcome. If you like, you can contact our office to discuss your family’s situation.