We know there are many estate planning situations that are enormously complex. Corporate ownership, assets in multiple jurisdictions, multiple family beneficiaries, family dysfunction issues – all of these can complicate an estate plan significantly.
But there are few estate planning issues as urgent as planning for the future care of someone with a physical, mental or emotional disability, especially when it’s a child with a long life ahead but who lacks the capacity to look after their own needs.
I use the word “urgent” because the great fear of loving parents planning ahead for the care of their special needs child is “getting it wrong” and leaving an estate that doesn’t adequately address their child’s needs. The good news is that a combination of good advice and careful planning will go a long way to ensuring you “get it right.” Here are a few high-level suggestions that can help you get there:
- Start as early as possible: When you have a young child with a significant disability, time, energy and the ability to think beyond the needs of the day are often limited. So it’s tough to think about the future – especially when it concerns death. But it’s worth your thinking time. While the risk of you and a spouse passing away at an early age is low, the risk isn’t zero. All new parents should be addressing issues such as life insurance and their will when they have a child. But it’s even more critical if your child is unlikely to be able to care for themselves as an adult. And by starting your planning at an early stage, you may be able to maximize the benefits of certain planning tools, like the Registered Disability Savings Plan (RDSP).
- Get advice – and understand the tools available to you: There is no “one size fits all” when it comes to estate planning for someone with special needs. There are government benefits that an individual may be eligible for, like the Ontario Disability Support Program, savings arrangements available, like the RDSP, and trust arrangements to consider, like a “Henson Trust” https://hullandhull.com/2015/12/henson-trust-advantages-and-disadvantages/ that can provide ongoing income to a beneficiary without jeopardizing eligibility for government benefits. A lawyer or financial professional with expertise in this area can be an invaluable resource.
- Put a plan in place: Act on the good advice you get and put your plan in place. That means moving the drafting and execution of your will up your priority list, because it’s a process that few enjoy and often falls into the “I’ll get to it eventually” category. There’s a lot at stake, so do it sooner rather than later.
- Revisit your plan regularly: Your situation may change, your child’s needs may change, and laws may change. Sit down with a professional every few years to review your plan and determine if a change could be beneficial.
This advisory has a good overview of the main planning tools that may be available to you:
Thank you for reading … Have a wonderful day!
Now that the 2016 year has begun, there are several amendments to the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp) (the “ITA”) that have come into force. Some of these amendments have been discussed on this blog before. Among these amendments is the introduction of the “qualified disability trust” (the “QDT”).
The requirements for a QDT can be found in s. 122(3) of the ITA, and are as follows:
i. At the end of the trust year, a QDT must be a testamentary trust that arose on and as a consequence of an individual’s death;
ii. The trust must be resident in Canada for the trust year; and
iii. The trust and the named beneficiary or beneficiaries must have made a joint election for the trust to be a QDT.
Section 122(3) now also includes requirements for the beneficiary of a QDT:
i. Section 118.3(1)(a) to (b) must apply to the beneficiary for the individual’s taxation year in which the trust year ends, meaning that the beneficiary must be eligible for the disability tax credit; and
ii. The beneficiary can only jointly elect for one trust to be a QDT.
If a trust meets the requirements for a QDT, it will not be subject to the new rules with respect to flat top rate taxation that are now applicable to testamentary trusts. This is an important qualification, because prior to the amendments that came into force January 1, 2016, all testamentary trusts were subject to graduated rates of taxation. Now, however, trusts will only have the benefit of the graduated rates for the first 36 months following the death of a testator, during which period they will be called “Graduated Rate Estates” (“GREs”). Therefore, the QDT has significant benefits with respect to taxation of trusts.
As noted above, however, the requirements for a QDT are far from simple. With respect to the disability tax credit, there are particular requirements and limitations for eligibility. The assessment of whether a particular individual will be eligible for the disability tax credit is done by a doctor, not a financial advisor, and it can be difficult to predict whether or not someone will qualify.
There are also some elements of the QDT which may raise planning challenges, including the limit of one QDT per beneficiary. For example, if the grandparents of a disabled grandchild have chosen to create a testamentary trust for the benefit of their grandchild, only one grandparent is able to have the trust qualify as a QDT. Furthermore, the joint election for the trust to be a QDT must be made each year, and each year the beneficiary must qualify for the disability tax credit. As such, the status of the trust may change from year to year, and must accordingly adapt to the changing application of the tax rules.
Thanks for reading.
Listen to Parties Under Disability
This week on Hull on Estate and Succession Planning Natalia Angelini and Bianca La Neve discuss parties under disability. They look into how they are represented in proceedings and who has the authority to do so.
If you have any comments, send us an email at firstname.lastname@example.org or leave a comment on our blog.
Parties Under Disability – Who Can Advance Their Interests and How Does One Get The Authority To Do So?
In estate litigation it is not uncommon for one or more disputing parties to be under disability. Unless the court or a statute provide otherwise, a party under disability must be represented by a litigation guardian (see Rule 7 of the Rules of Civil Procedure, which regulates proceedings by or against parties under disability).
Someone can act as the litigation guardian for a plaintiff (or applicant) by filing an affidavit with the court, the required contents of which are set out in Rule 7.
In the case of a defendant (or respondent) who is a minor, the Children’s Lawyer shall act as the litigation guardian, unless the court orders otherwise.
In contrast, in the case of a defendant who is an adult, aside for a few exceptions set out in the Rule, no one can act as a litigation guardian until appointed by the court. The evidence that must be filed in support of the motion for such appointment is also particularized in the Rule.
Some other noteworthy provisions in Rule 7 are:
· a litigation guardian other than the Children’s Lawyer or the Public Guardian and Trustee must be represented by a lawyer;
· a litigation guardian shall diligently attend to the interests of the person under disability and take all steps necessary for the protection of those interests, including the commencement and conduct of a counterclaim, crossclaim or third party claim;
· where it appears to the court that a litigation guardian is not acting in the best interests of the party under disability, the court may substitute the Children’s Lawyer, the Public Guardian and Trustee or any other person as litigation guardian; and
· no settlement of a claim made by or against a person under disability, whether or not a proceeding has been commenced in respect of the claim, is binding on the person without the approval of a judge.
Have a great day,
You would expect that a minor or a party to a proceeding who is declared mentally incapable to manage his/her property and/or personal care (under sections 6 and 45 of the Substitute Decisions Act) would not be able to or required to participate in the litigation. However, this is not so.
Pursuant to Rule 31.03 (5)(b) of the Rules of Civil Procedure, a party under “disability” (defined to include minors and mentally incapable adults) can be examined for discovery if he/she is "competent to give evidence".
The onus of establishing incompetence rests on the party alleging it: Barnes v. Kirk,  2 O.R. 213 (C.A.).
Application of the Rule has led to varying decisions and approaches, a few of which I note below.
· a party under disability may be examined if competent to give evidence subject to the discretion of the court to impose limits where the examination would be oppressive, vexatious or unnecessary: Nyilas v. Janos (1985), 50 C.P.C. 91 (Ont. Master);
· an appointment for discovery should be struck out on the grounds of unsoundness of mind only in the clearest cases – the preferable course is to allow the trial judge to rule on the admissibility of the examination and the credibility of the witness: McGowan v. Haslehurst (1977), 17 O.R. (2d) 440 (H.C.);
· the right to examine a minor for discovery is not absolute – the court should interview the child before exercising its discretion in that regard: Bennett v. Hartemink (1983), 42 C.P.C. 33 (Ont. H.C.);
· a defendant was denied the right to examine a ten-year-old plaintiff where it was found that the examination would result in psychological herm to the child: Kidd v. Lake (1998), 42 O.R. (3d) 312 (Gen. Div.); and
· the court permitted the examination of two plaintiffs (ages 16 and 11) notwithstanding evidence that it might cause serious psychological damage: Nyilas v. Janos, supra.
Have a great day,
Settlements of claims involving the interests of minors and persons under disability, whether or not actual litigation proceedings have been commenced, must be approved by a Judge according to Rule 7 of Ontario’s Rules of Civil Procedure in order to be binding on the minor/disabled.
Although vital to protect the vulnerable, this rule can cause unexpected additional legal fees and delay. Those costs and delays can come at the worst time, since often parties think a matter is settled and they can get on with their lives, only to find that the Court can put the brakes on the entire deal. Sometimes the interests of the incapable person or minor will only come to pass under certain circumstances, for example if an adult beneficiary dies before a specified time or event. Those interests, referred to as contingent interests, can get lost in the shuffle of litigation and settlement negotiations, only to raise their ugly heads after the deal is struck.
It also is not a given that the deal will survive the scrutiny of the Court, and it is not the Court alone which will be reviewing any deal. The Children’s Lawyer (the "OCL") will need to be notified of a settlement affecting a minor, and the Office of the Public Guardian and Trustee ("OPGT") of a settlement affecting an incapable person. Those two officials/offices will deliberately look at any deal only from the perspective of the vulnerable, not at the benefits of the deal as a whole.
The Court often places considerable weight on the positions of the OCL and OPGT, and those positions should never be taken for granted. For that reason, they should be notified at the outset of any proceeding so that they can take part in the negotiations leading to the deal.
Thanks for reading.