A testamentary trust is a trust that is set up in a will and takes effect after the death of the settlor. A discretionary trust is a trust set up where the beneficiary doesn’t have control over the money in the trust. The trustees make all of the spending decisions. The trustees can be family members, friends, professional advisors or corporate trustees.
Not only will a discretionary trust for a disabled beneficiary in a Will allow for the assets to be managed on the beneficiary’s behalf by a trustee of your choosing, it will also reduce the likelihood that the disabled beneficiary will lose access to government services or benefits. Because the beneficiary of a discretionary trust has no right to demand any of the income or capital of the trust, the person is not considered to own any of the trust property or to be entitled to any of the trust income.
Only the amounts actually distributed out of such a trust to a disabled person will be included in the disabled person’s assets and income in determining whether the disabled person is entitled to government services and benefits. There is no limit to the amount of money that can be inside a discretionary trust.
Allowable Assets for People Receiving Disability Benefits
Asset Limit:
If a beneficiary is designated as a Person With a Disability (PWD) pursuant to the Employment and Assistance for Persons With Disabilities Act and is receiving disability benefits, they are allowed to have a certain amount of assets in their name before they become ineligible for benefits. For example, if a beneficiary is a single person with no dependants, their assets cannot exceed $3000. Benefits can be discontinued or clawed back if the asset limit is exceeded.
Asset Limit Exemptions:
The following list includes items which someone can own and not exceed their asset limit. (All the current asset exemptions are listed under Section 6 of the Employment and Assistance Regulations, which accompanies the Employment and Assistance for Persons With Disabilities Act. An electronic copy of the regulations is available at: www.qp.gov.ca/statreg/list_statreg.html)
- $3000 for a single person with no dependants;
- A person who has a dependant is allowed a maximum of $5000;
- A $400 earning exemption per family per month;
- Clothing and necessary household equipment;
- One motor vehicle;
- A primary residence;
- money received from a mortgage or the sale of the residence as long as the money is used to buy a new home or to pay rent on a place of residence;
- Tax credits and income tax refunds;
- Government settlements for example: compensation for thalidomide victims and Hepatitis C victims etc.;
- Non-discretionary trusts up to $100,000. A non-discretionary trust, which exceeds the $100,000 limit, is considered to be an asset; and
- **A discretionary trust is not considered to be an asset because the beneficiary has no ownership over the assets.
Items a Trust Can Pay For:
Money can be spent on the following items without a deduction to the beneficiary’s monthly disability benefits:
- Purchasing a home for the beneficiary;
- Purchasing a car for the beneficiary;
- Medical aids or supplies;
- Education or training;
- Home renovations required to make the residence more accessible for the beneficiary ;
- Home maintenance and repairs; and
- Home support and caregiver services.
There is no limit to the amount of money that can be spent on the above items. In addition, there is an annual limit of $5,484 which can be spent on any goods or services that will help the beneficiary live more independently. If the trustees are unsure if an intended expenditure falls within the independent living category, they can check with the Ministry of Employment and Income Assistance before spending the trust money on it. However, the trustees have the final say as to how the money in the trust is disbursed even if it means that the beneficiary’s disability benefits may be deducted.
Other Benefits of a a Discretionary Trust Created in a Will: Creditors and Family Law Claims
This planning may also provide some insulation for claims, including from potential creditors or claims that might arise in a marital property settlement.