People who support adult dependent children have specialized needs in their estate and financial planning. Often these adult dependent children, due to physical or mental disability, will be dependent on government benefits for their entire life. The following are some estate planning strategies that can be used to effectively plan ahead:
Qualifying for Provincial Disability Benefits
To qualify for disability benefits, an individual must:
• be 18 years of age or older;
• be a Canadian citizen, permanent resident or Convention refugee;
• be a resident of BC;
• have severe mental or physical impairment that, in the opinion of a medical practitioner, is likely to continue for a least 2 years and which significantly restricts the person’s ability to perform daily living activities so that the person requires help to perform those activities; and
• cannot have more than $3000 of “non-exempt” assets (the figure is $5000.00 for an individual with one or more dependents).
Creating a Special Needs Trust in your Will
The most effective way to ensure your loved one is cared for after your death is to create a special needs trust in your will. This trust would have to be set up as a discretionary trust so that the beneficiary does NOT have control over the money in the trust. The trustees make all of the spending decisions. Therefore, it is extremely important to have trustees who know the beneficiary well and who understand and support his or her needs and lifestyle. There is no limit to the amount of money that you can place in a discretionary special needs trust.
This allows a disabled person to retain disability benefits because an interest in a trust which is entirely discretionary as to the payment of income and capital to the beneficiary who qualifies as a disabled individual is not considered an asset by the Ministry; as a beneficiary’s interest in a discretionary trust is entirely contingent upon the trustee exercising his or her discretion to make a payment to the beneficiary, there is no certainty that the beneficiary will ever receive anything from the trust so the fair market value beneficial interest is nominal. Also, expenditures from discretionary trusts for “disability related” costs are not treated as income. A trustee can use trust funds for devices or medical aids for the purpose of the person’s health, caregiver services, education or training, renovations to a residence necessary to accommodate the person’s disability, maintenance of the residence and up to $5,484 per year to promote the independence of the disabled person.
What to do When Proper Estate Planning has not Occurred
If a discretionary trust is not created in your will, the alternative of last resort is to create an inter vivos trust. An inter vivos trust is a trust that comes into effect during the lifetime of the person who established the trust. Only if a beneficiary gets money outright, for example, from an estate which did not create a discretionary trust would the solution of an inter vivos trust be the preferred solution because an inter vivos trust is taxed at the current top marginal rate of 44% in B.C. (this tax rate changes from time to time).