A trust is an arrangement whereby a person (the “trustee”) holds the money for the exclusive use or benefit of another (the “beneficiary”). You may have heard about trusts that the more affluent set up for their children. The trusts that we are talking today about are somewhat different in the sense that they are discretionary trusts for the benefit of a person with a disability.
The key point is that these trusts are discretionary (in legal terms they are called “absolute discretionary trusts”) in that the trustee has absolute discretion in the disbursement of funds from the trust for the benefit of the beneficiary.
Courts in Canada have determined that money held in a discretionary trust (also called a “Henson Trust” or a “Supplemental Needs Trust”) for a person with a disability does not affect the person’s ability to receive their Disability Assistance. In BC, if the funds from the trust are used to cover “disability related expenses”, without being given to the beneficiary as cash, they will have no impact on the beneficiary’s continued receipt of Disability Assistance without the PWD clawback that I referred to in previous posts.
Trusts can be complicated and need to be constructed by a lawyer who specializes in this field. It should also be accomplished in conjunction with writing your will. Before rushing off to the lawyer’s office, I recommend that you take the PLAN – Wills and Trusts seminar (on-line or in person) to work through your personal details. Part of the course involves filling out a worksheet which is invaluable when you finally meet the lawyer to setup the trust.
Discretionary trusts are a valuable tool for high income households to plan for special needs individuals who are unable to manage their finances and at the same time maximize the PWD benefits.
Does every special needs person need a trust? Absolutely not! In the past, a discretionary trust was the only way to supplement the income of a person in receipt of Disability Assistance. Now we have the RDSP which is much easier to manage and more accessible to those of more modest incomes. The primary limitation of an RDSP is the $200,000 maximum lifetime contribution limit, but with proper planning this may be more than enough. Having said that, the optimal solution is to have both a discretionary trust and an RDSP. The withdrawal rules are different for each of them and a trustee can use those rules to maximize the financial benefit to the beneficiary.
An outstanding guide to trusts can be found on The Voice of the Cerebral Palsied of Greater Vancouver.
The role of the trustee is a demanding one and perhaps more than could reasonably be expected of most people. You may want to consider The Coast Financial Trust Program. They will assist you in setting up and administering the trust. Given the difficult task, the fees are quite reasonable.