ODSP asset and income restrictions are so limiting and frustrating that most people would choose to forgo ODSP altogether if money wasn’t an issue. That’s not the case for most, though.
Parents are very concerned about making sure their child’s financial security is maintained after they (the parents) pass away. Key aspects of estate planning focus on not only how to protect ODSP, but also how to supplement it because ODSP income will not maintain a reasonable standard of living.
While they are alive parents are able to supplement their child’s ODSP with their own assets – buy them groceries, clothes, other items, give them pocket money and take them out for meals and even vacations.
Parents can’t leave the assets from their estate in their son or daughter’s name, without threatening their ODSP.
There are a number of important ODSP “exempt assets”. The Henson Trust and the Registered Disability Savings Plan are two exempt assets that play a role in estate planning. To understand the Henson Trust https://reeganfinancial.com/supplementing-your-childs-odsp-after-your-own-death/. To read more about the RDSP https://reeganfinancial.com/rdsp/
ODSP is not concerned with the amount held in a Henson Trust. They are VERY concerned with how much comes out of the Henson Trust. There are strict limitations on how much money can be taken from a Henson Trust to pay for non-disability related items and expenses.
A person on ODSP is not allowed to receive more than $6000 every 12 months from most sources including, Henson Trusts, for non disability related items and expenses. If this limit is exceeded, ODSP benefits can be easily garnished or revoked altogether. While $10,000 of renovations to accommodate a person in a wheelchair on ODSP can be paid for with money from a Henson Trust because it is a disability related expense, the same amount from a Henson Trust used for a vacation (a non-disability related expense), ODSP benefits would be compromised.
A limit of $6,000 every 12 months is fairly meagre. I have ODSP clients in their 50s who have recently received inheritances and would like to travel, but they are limited by this $6,000 rule. It’s a frustrating experience having a supply of money they can’t access for certain types of expenses.
An alternative to the Henson Trust is the Registered Disability Savings Plan which is another ODSP exempt asset. While there is a deposit limit of $200,000 with RDSPs, any money withdrawn from an RDSP is not subject to the $6,000 limit, even if the money is used to cover the cost of a non-disability related expense. This is a serious advantage the RDSP has over other ODSP exempt assets like the Henson Trust.
I have one client in her 50s on ODSP who opened an RDSP account and deposited $200,000. She is now able to go on extended vacations by using money from the Rdsp to cover the cost of he trips without worrying about ODSP.
The Registered Disability Savings Plan has its own restrictions that should be considered, but the little known yet very important fact that any amount of money from an RDSP can be spent on non-disability related expenses can change the quality of one’s life dramatically without threatening ODSP.
How much money you set aside for your son or daughter is important. How it is structured – Henson Trust, RDSP – is significantly important as well.
Hi Ron, As I understand O.D.S.P (adult son on O.D.S.P, and lots of homework), if your clients take out more than the $6,000 they should take it out in 1 month only. When they report back to O.D.S.P say for holidays etc, O.D.S.P will notify them they have gone over in that month and will require that months O.D.S.P funds back (the amount they usually get) and that they will be deducting so much per month to recoup it.
Bottom line keep all big expenses to 1 month a year only.
If I understand your question correctly, I think you are asking if you are going to exceed the ODSP limit in order to pay for a large expense, should you do so in one month? First, I think you are getting two ODSP rules confused. An single person on ODSP with no dependents can never exceed $5,000 of non-exempt assets (e.g. $5,000 in a savings account at the bank). The other rule is that they are not allowed to receive more than $6,000 every 12 months from a trust, segregated fund account or in gifts from others to pay for non-disability related items and expenses. Example using a Henson Trust: $1,000 is taken out of the Henson Trust in April 2013 to pay for a computer and in September 2013 $4,000 was taken out of the trust to pay for a vacation, and $600 is taken out in March 2014 to cover a variety of non-disability related expenses. The total is $1,000+$4,000+600 = $5,600. While the total the person on ODSP received from the trust is greater than $5,000 they never spent it along the way and, as such, never had more than $5,000 in their bank account at any given point in time, nor did they receive more than $6,000 in the 12 month period between April 2013 and March 2014. If instead of taking out $600 in March 2014, $2000 was taken out and spent on non-disability related expenses, the $6000 limit in the 12 month period between April 2013 and March 2014 would have been exceeded, which could ODSP could take issue with.
However, if you are asking, “If a person on ODSP is going to withdraw a large sum of money from a Henson Trust to cover a large expense and thus exceed the $5,000 limit and possibly the $6,000 every 12 month limit, should they do it in one month with the expectation they would only lose one month of ODSP income?” I would suggest you think very carefully before you attempt this. Let’s use an extreme example. Let’s say $30,000 is withdrawn from a Henson Trust to go on a 1 month extravagant trip through Europe. I do not think ODSP would necessary stop at penalizing one month of ODSP income.
Hi Ron, According to Ken Pope the Henson Trust/ ODSP lawyer in Ottawa, If more than $6,000 is needed from a Henson Trust in any 12 months,(say for a holiday or a new car) withdraw the amount needed in 1 month only. ODSP will only try to recoup the 1 month of ODSP payment and this they will recoup over a number of months. They will not of course not try to recoup the expense amount (new car or whatever). I also think it is mentioned in 1 of his webcasts. I will try to find it!
If you actually need more than $6,000 for an expense and the only place to get that money from is a Henson Trust, I would agree with this strategy. However, this is exactly why having funds in an RDSP as well can be very advantageous because money from the RDSP is not subject to the $6,000 limit. One other thing, if the money taken from the Henson Trust is used to purchase an asset that is not exempt under ODSP and the ownership of that asset is put in the name of the beneficiary of the Henson Trust (person on ODSP) that will cause other problems with ODSP. As a side note, a car is considered an asset and not an expense by ODSP. While you can own one vehicle, ODSP does not allow the purchase of a second vehicle unless its value is less than $15,000 and it is needed to maintain employment. If the money from a Henson Trust is used to purchase a second vehicle and an exemption for it is not granted by ODSP, ODSP benefits will be jeopardized.
We are in the process of doing both. We did not know there was a $6000 limit per yr on the Henson Trust. We have the RDSP in place already. The goc’t contributes grants to that as long as we contribute on a yearly basis we understand. How are those grants affected if we or she ( our daughter) takes out money before she is 60? Also, if she has both, can she take $6000 out of the Henson plus more from the RDSP without affecting ODSP?
Withdrawal penalties from an RDSP are confusing until you get your head around them. Take a look at question 6 in the FAQ I wrote on the RDSP: https://reeganfinancial.com/rdsp-frequently-asked-questions/. While your daughter will be compelled to start taking out money from her RDSP the year she turns 60, she might be able to take out money sooner without penalty. It really depends on when all the government contributions have been received.
Yes, a person on ODSP can receive $6,000 from other sources, including a Henson Trust, and withdraw more from an RDSP without affecting ODSP.