ODSP – Can you put inherited funds into a trust after receiving the funds and still qualify?

July 8, 2019 Stuart Clark Estate Planning Tags: , , , , , , , , , , , , , , 0 Comments

The use of planning tools such as a “Henson Trust” is an often discussed topic in the estate law world for what can be done to allow an individual who receives benefits from the Ontario Disability Support Property (“ODSP”) to receive an inheritance from an estate without losing their benefits. Although the Henson Trust can be an effective tool to allow an individual to receive an inheritance from an estate while not losing their benefits, as a central tenant of the Henson Trust is that the inherited funds do not “vest” in the beneficiary until the trustee makes a distribution in their favour (thereby allowing funds in the trust not to count against the asset limit provided for by ODSP before they are distributed), a beneficiary and/or Estate Trustee cannot create a Henson Trust after the testator has died as the inherited funds have typically already “vested” in the beneficiary and therefore would count against the asset limits for ODSP. As a result, if a beneficiary who receives an interest in an estate is also an ODSP recipient (and the Will did not use a tool such as a Henson Trust to ensure the inherited funds do not count against the ODSP qualification criteria), there is the risk that the beneficiary could lose their ODSP benefits as a result of the inherited funds putting them offside the ODSP qualification criteria.

Although advance planning is always preferable when dealing with a situation in which a potential beneficiary receives ODSP, sometimes for whatever reason a testator does not take steps prior to their death to ensure that their estate plan includes tools such as a Henson Trust that would allow the beneficiary to receive the inheritance as well as continue to receive their benefits from ODSP. Should this occur, although the options available after the testator’s death are more limited to the beneficiary, there remain certain remedial steps that could be taken by the beneficiary to help to insulate them against the risk that their newly inherited funds would disqualify them from ODSP.

The general parameters for who is entitled to ODSP and how it is to be administered is governed by the Ontario Disability Support Program Act (the “Act“), section 5(1) of which provides that the government through regulation is to establish a maximum “asset limit” for an individual who receives ODSP. The regulation that establishes the asset limit is O.Reg. 222/98 (the “Regulation”), section 27(1) of which sets $40,000.00 as the current maximum “asset limit” for an individual who receives ODSP (although such an asset limit is potentially higher if the individual has a spouse or dependants).

As a result of section 5(1) of the Act in collaboration with section 27(1) of the Regulation, if an ODSP recipient’s total assets exceed the $40,000.00 maximum asset limit after receiving their inheritance they would likely lose their ODSP benefits. To this respect, if the potential inheritance the beneficiary/ODSP recipient is to receive is significant, there is the very real risk that if no steps are taken to help to insulate the inheritance from counting against the asset limit the beneficiary would lose their ODSP benefits.

Although section 27(1) of the Regulation provides that the ODSP recipient’s assets may not exceed the maximum threshold, section 28(1) of the Regulation lists certain assets and/or interests which are deemed not to be included in the calculation of an ODSP recipient’s assets. These “non-counting” assets potentially include a trust that is established by a beneficiary with funds that they inherit from an estate. Specifically, item 19 of section 28(1) of the Regulation provides that the following would not count against the asset limit:

Subject to subsection (3), the person’s beneficial interest in assets held in one or more trusts and available to be used for maintenance if the capital of the trusts is derived from an inheritance or from the proceeds of a life insurance policy.

Section 28(3) of the Regulation then further provides:

The total amount allowed under paragraphs 19 and 20 of subsection (1) shall not exceed $100,000.

As a result of section 28(1)19 of the Regulation in conjunction with section 28(3), if an ODSP recipient receives an inheritance or the proceeds of a life insurance policy they are allowed to put up to $100,000.00 of such funds into a trust to be held for their benefit without such funds counting against their asset limit for ODSP. As a result, if the inheritance that the ODSP recipient is to receive is $100,000.00 or less (or close to $100,000.00 such that any excess over $100,000.00 would not put them offside the asset limit), the potential option of putting the inheritance into a trust for the benefit of the ODSP recipient may be available to help insulate the inherited funds from counting against the asset limit.

If a beneficiary/ODSP recipient would like to explore the possibility of establishing such a trust after death they should speak with a lawyer to ensure that the trust is drafted in compliance with ODSP requirements.

Thank you for reading.

Stuart Clark

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