As of January 2012, there are over 225,000 people who receive Ontario Disability Support Plan (ODSP) income. This government income can provide somewhere in the neighbourhood of $1,000 a month. Some receive less and other more. Regardless, not much money to live on. Many parents of ODSP recipients will supplement their child’s ODSP income to provide a better standard of living.
When parents are alive, they are able to supplement their child’s ODSP income with their own resources. Things become much more complicated when the parents die. Parents want to continue supplementing ODSP payments from the proceeds of their estate. The challenge is how do they structure their estate so they do not jeopardize their child’s ODSP income?
ODSP asset restrictions state a recipient is not allowed to have more than $5,000 in non-exempt assets. Parents who leave more than that in their child’s name, endanger ODSP income.
To circumvent this issue, some parents have left their estate to others (e.g. one of their other children) instructing them to provide their son or daughter with the support they need without jeopardizing ODSP. Even if the sibling receiving the estate abides by the parents’ wishes, there are risks.
Here is a scenario. Your adult daughter has a developmental disability. She is on ODSP and you and your spouse have supplemented her ODSP. In order to supplement and maintain her ODSP after death, you have decided to leave your estate to your son, who cares for his sister, deeply. You have instructed your son to use half the estate to support his sister and use the other half for himself, wife and 3 kids. This puts a great deal of control in your son’s hands. He may be honourable, but what happens if he falls on tough economic times? What if he faces a major expense later down the road? What if he feels that taking care of his sister takes time away from his business and thus reduces his income? In these circumstances, might he feel justified in modifying how the resources are allocated?
Another factor to bear in mind. If the son dies, the proceeds of his estate may be left to his wife, which only complicates matters. The estate left by his parents is now in the hands of his wife, who may have very different priorities. Similar to the son, his wife has control of the assets and can decide to assist your daughter or not. If the wife dies, the money goes to the children. Enough said.
There are better options when planning your estate, enabling you to provide for your child on ODSP. One fundamental mechanism is the Henson Trust. The Henson Trust is an absolute discretionary trust; it will describe how your estate shall be used to support your child with the disability, but control of the trust is at the absolute discretion of the trustee or trustees. In other words, your child, the beneficiary of the trust has no legal control and has no legal recourse to demand funds from the trust. Because it is an absolute discretionary trust, ODSP is not able to count it as an asset belonging to the ODSP recipient. As a result, your child maintains their ODSP income and benefits from the proceeds of the estate as long as it is properly managed.
Establishing multiple trustees, can help to ensure the proceeds of the trust are used as intended, which is to take care of your child. If one or more of the trustees die before your child, the assets remain in the trust as it is not part of the dead trustee’s personal estate.
Without a Henson Trust in place, honouring the wishes of deceased parents can be challenging. This is not a cynical judgment. With nothing written down and no formal mechanisms in place, directives and wishes are misinterpreted, the details forgotten and argued about. With a Henson Trust and a sound estate plan in place, those you leave behind should have more clarity and guidance, reducing the inherent complications brought on by the alternatives.
I have an adult daughter with a disability (receiving ODSP), and would like to supplement her income after I pass away. My brother was executor of my will but I need to change the executor due to a change in his personal circumstances (he was convicted of fraud over $5000).
Since I have no-one else that can serve as executor, I am considering a corporate trustee- but these fees are very high- and almost equal to what my daughter would be able to receive!
What are your thoughts on creating an annuity that would pay out $500/ month from the proceeds of my estate- then splitting the rest between my nieces & nephews and charity?
If your daughter is able to own an annuity (i.e. she has the legal capacity to enter into a contract. What type of disability does she have?). However, the value of the annuity must never exceed $100.000 and she can’t hold anything in a discretionary trust or have a life insurance policy with any cash value if she holds an annuity valued at $100,000.
If she does have an annuity that pays out $500 a month that is used for non-disability related expenses, she can’t receive money from most other sources without jeopardizing her ODSP.
Also, the money going to your neices and nephews…are those funds really to support your daughter?
This is a complex matter that merits a more fulsome matter. Dependencies include the amount of money you are speaking about, your age, your daugher’s age, other opportunities that may exist. Your daughter’s ability to manage her own financial affairs, etc.
If you would like to discuss, please feel free to contact me to discuss.
Can money that is currently in a TFSA be part of the assets that I designate for the Henson Trust without affecting ODSP benefits?
Yes, money in your TFSA can be designated to be part of a Henson Trust. However, the money would have to be withdrawn from the TFSA and then directed into the Henson Trust. You can’t have it so the TFSA account sits in the Henson Trust. Assuming you want the money in your TFSA to go to the Henson Trust after your death, you need to work with your lawyer and financial advisor to make sure your will is drafted correctly and the beneficiary designation on your TFSA account is also set up correctly.