Trust and Estate Planning for a Person with Disability
Ensuring a family member or a loved one with disability is provided with the best care and financial support for the future can be difficult if there is no plan set aside, especially under circumstances when you or their caregiver passes away or no longer has the ability to provide for them. A well-established estate plan for a person with a disability is essential to their future financial well-being.
What is an Estate?
An estate refers to a person’s lifetime accumulation of assets and property that are legally owned or registered either in their own name, in partnership (i.e. joint accounts) or in a trust. These assets and property includes, but are not limited to, cash, bank accounts, investments (both registered and non-registered), primary residence, recreational property, and vehicles.
What is Estate Planning?
An estate plan is unique to each individual and should reflect your objectives of any and all asset transfers. Preparing an estate plan will ensure your estate is distributed according to your wishes. The benefits of a proper estate plan include:
- Minimizing taxes and probate fees;
- Avoiding unnecessary expenses or time delay in the distributions of the proceeds of the Estate;
- Avoiding family disputes that may arise with an unplanned Estate; and
- Providing for family members with special needs.
What are the first steps to creating an Estate plan?
- Consult with professionals;
- Construct a list of your Assets and Liabilities;
- Identify your objectives (wishes) regarding the transfer of your assets;
- Create a will (including selecting an executor);
- Establish a Power of Attorney (both for assets and personal care);
- Evaluate your life insurance requirements;
- Evaluate the use of trusts and joint ownership arrangements to minimize taxes;
- Review and Update your plan as your life situation changes; and
- Tell a family member about your plan.
What is a Will?
A will is a written document that outlines how you want your assets distributed at the time of your death. These are assets you own solely in your name and does not include assets you jointly own with another person or assets for which you are able to name a beneficiary such as a registered retirement savings plan or an insurance policy. You must appoint an Executor of your will whose duties are to carry out your wishes as stated and deal with the financial and legal requirements of settling your estate. It is a good idea to name a guardian for any minor children in your will.
What is a Trust?
A trust is a legal arrangement that transfers legal title of property to a trustee for the benefit of the beneficiaries. The settlor is the person who creates the trust with a contribution of property. A trust deed is executed by both the settlor and trustee that outlines the responsibilities of the trustee to prudently manage the property of the trust in the best interests of the beneficiary. In most cases, the use of a trust is the most integral part of estate planning.
What are the different types of Trusts?
There are different types of trusts for different purposes. Trusts fall under provincial legislation and the tax treatment of these trusts may be different under different subsections of the Income Tax Act [Canada]. Some common trusts used for estate planning for families with special needs are:
- Registered Disability Savings Plan ("RDSP")- A registered "trust" savings plan that allows for eligible people with a disability to defer tax on investment earnings and growth inside the plan. The Government of Canada will match as much as 300% of contributions to the plan and may also contribute up to $1,000 annually dependent upon income levels.
- Discretionary Trust (often referenced as a "Henson Trust")- A trust that may be set-up during the donor's lifetime or on the donor's death for the benefit of a beneficiary with a disability. As the trustee has full discretion over the assets of the trust, the trust funds will not disqualify the beneficiary's entitlements to provincial disability benefits.
- Lifetime Benefit Trust (proposed under Bill C-10)- A personal trust that allows for a tax-deferred rollover of RRSP or RRIF assets for the benefit of a mentally infirm dependant. Mentally infirm dependants include spouses, children, and grandchildren.
What are the benefits of a Trust?
- Eliminate probate fees on the assets held by the trust
- Manage assets for beneficiaries who lack financial acumen
- Protection of Provincial Benefits
- Protection from creditors or family law claims
- Privacy
What does it mean to not have an Estate Plan?
When a person dies without an Estate Plan in place, such as a will or trust, the estate will be required to undergo probate. The probate process is a court supervised process that is used to settle any outstanding debts, taxes or disputes that the estate has prior to deciding the distribution of the remaining assets and property within the estate. There is a fee to the probate process.
What can Ability Tax Group LLP (ATG) do for you?
As proper trust and estate planning may require expertise (i.e. legal, financial, insurance) from a number of professionals, ATG will coordinate these activities on behalf of the client. ATG will complete a preliminary assessment of the client's options regarding trust and estate planning issues. Developing a network of trust and estate practitioners across Canada, ATG will refer client files to the appropriate professionals (fees may apply). ATG will interact with the other professionals on the clients behalf to ensure the optimization of all available government tax incentives for persons with a disability.
The above is a simple overview of trust and estate planning. It should be read as general information only. These areas may be complex given the application of various legislation. There are additional legislative requirements that must be satisfied in addition to the ones mentioned above. You should always consult a professional regarding any tax, investment, or financial activity.
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