All About Estates

Further Reform Needed to Support Disability Benefits Recipients

As my fellow bloggers have recently written, changes have been made to the Ontario Disability Support Program (“ODSP”) effective September 1, 2017, three of which are of particular importance for estate planning purposes:

  1. The amount a benefits recipient can receive in the form of gifts, trust distributions, and life insurance proceeds (“voluntary payments”) has been increased from $6,000 per year to $10,000 per year;
  2. The benefits recipient can receive a gift of any amount and it will not be counted toward the recipient’s annual income limit if it is used to acquire a principal residence, a vehicle, or to pay first and last month’s rent; and
  3. The asset limit for individuals has been increased from $5,000 to $40,000, and the asset limit for couples has been increased from $7,500 to $50,000.

The changes are positive in that they will allow a benefits recipient to accumulate more assets without running afoul of the asset limit, and they will allow family members (and others of course) to provide greater annual support to a benefits recipient in the form of voluntary payments.

The above changes were implemented by the government of Ontario. There are changes that could be made at the federal level to further assist disabled persons and their supportive family members and friends.

I have previously blogged about the requirements under the Income Tax Act for a trust to qualify as a qualified disability trust (“QDT”), the primary benefit of which is that income accumulated in the trust is taxed at graduated rates. Two requirements in particular should be reconsidered. First, the disabled person who is the “electing beneficiary” of a QDT must be named in the trust instrument. It is not clear why a trust set aside for a named individual who has a disability at the time a will is made should be treated any differently for tax purposes than a trust set aside for a “child” or “issue” (e.g. a share of residue) who is not specifically named in the will but suffers from a disability, so long as that person qualifies for the disability tax credit and the requisite election is made. The distinction appears arbitrary in that the tax benefits depend in part on when a person becomes disabled. This requirement should be repealed.

The second rule that should be reconsidered is the rule which provides that there can be only one QDT for a particular electing beneficiary in any year. While the tax policy objective is more clear in this case (i.e. limiting the number of trusts that qualify for graduated rate taxation, which is now the exception rather than the rule), the number of trusts that will qualify as a QDT is already limited by the requirement that the electing beneficiary qualify for the disability tax credit. If there is still a concern with the number of trusts that could potentially qualify, the existing rule could be changed to permit an electing beneficiary to elect for any trust established by a prescribed class of persons to qualify as a QDT, such as a spouse, parents, siblings, and grandparents. There are many families where multiple family members have modest amounts that they wish to set aside in a Henson Trust (that also qualifies as a QDT) for an ODSP-recipient, and the ability to access graduated rates in each trust can make a difference.

At the very least, in light of the recent changes to the principal residence exemption rules which limit the ability of personal trusts to claim the exemption, all of the parents of disabled beneficiary should be able to establish QDT’s. That would help prevent a scenario where one-half of a jointly-owned principal residence falls into each parent’s estate because they die in a common accident, leaving half of the future capital gain unsheltered.

If the federal government is interested in tax changes that will be positively received, these are a good place to start!

About Darren Lund

Darren Lund is a member of the Trust, Wills, Estates and Charities Group in the firms Toronto office. Darren has expertise in a broad range of estate planning matters, including multiple wills, inter vivos trusts, disability planning, estate freezing, and planning for beneficiaries and assets outside Canada. Darren advises trustees and beneficiaries on all aspects of estate administration, both contentious and non-contentious, and his experience includes passing of fiduciary accounts, trust variations, post-mortem tax planning, and administering the Canadian estates of non-residents. He also speaks and writes on a variety of related topics such as estate planning for spouses and couples, inheriting overseas property and estate planning for persons with disabilities. He previously practised estates law at a large national law firm.

Email: dlund@fasken.com

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