Providing for Disabled Beneficiaries – PART III

January 10, 2007 Hull & Hull LLP Beneficiary Designations, Ethical Issues Tags: , , , , 0 Comments

Yesterday, I introduced the basic principals of the Ontario Disability Support Program (“ODSP”). In order to maintain benefits, the disabled individual must acquire assets that exceed the income and asset thresholds. In an estate planning context, this can be achieved, to a certain extent, by effective planning.

The ODSP exempts a number of assets from the calculation of the disabled person’s assets as defined under the relevant legislation and regulations. These exempted assets can be gifted to the disabled beneficiary, or bequested under a will, without disqualifying the individual. A partial list of assets that can be gifted or bequested includes:

• A principal residence, or the proceeds from the sale of a principal residence, provided that the proceeds are used for the purchase of another principal residence within 12 months from sale;

• An interest in a second property, if the Director is satisfied that the property is necessary for the health or well-being of a member of the benefit unit. For example, a second property that is a cottage could be considered necessary for health and well-being. Further, a second property in a country with currency restrictions that cannot be liquidated or where proceeds cannot be remitted outside of the country may also be exempted

• One motor vehicle, regardless of value, and a second vehicle if the net value is no more than $15,000 and it is required to permit a dependent of the applicant to maintain employment;

• The total cash surrender value held in an insurance policy, to a limit of $100,000;

• Prepaid funerals for an applicant or spouse;

• Registered Education Savings Plans;

• The amount remaining to be paid to a member of the benefit unit under a mortgage or agreement for sale (however, actual payments received qualify as income);

• Business assets of a self employed applicant or member of the benefit units, up to $20,000;

• Tools of the trade that are essential to the operation of a business or the employment of a member of the benefit unit;

• Assets derived from a dependent child’s earnings;

• Assets derived from the earnings of a dependent adult who is attending secondary school full time;

• "Locked in" RRSPs;

• The income from "locked in" RRSPs in certain circumstances;

• Loans for the purpose of purchasing exempt assets;

Thus, a gift or a bequest of a principal residence to the disabled beneficiary will not disqualify that individual. The disabled beneficiary could use the ODSP benefits to maintain the property. However, care must be taken in order to ensure that the disabled individual can maintain the property without requiring extra income in excess of $5,000, or the burden of maintaining the property and the funds required may otherwise disqualify the beneficiary.

Other options include the purchase of a pre-paid funeral for the disabled beneficiary, or the purchase of a life insurance policy.

Tomorrow, I will discuss the use of a discretionary trust, also known as a “Henson Trust”.

Have a great day.
Paul Trudelle

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