Estates, Trusts & Disability Planning
The complexities of today’s ever changing estate planning laws necessitate more than ever the assistance of professionals knowledgeable in the areas of Wills, Estates and Trust law. Such planning becomes even more important when considering the unique needs of a person with a disability (“PWD”). For example, can the PWD independently manage their financial affairs and/or are they receiving provincial disability benefits? What is the impact on the entitlement to provincial disability benefits for a PWD receiving an inheritance? While visiting your local drugstore to pick up the latest “do it yourself Will Kit”, may appear to be the more economic approach to resolving your estate planning requirements, such a choice may also result in unexpected costs, delays, and uncertainty in the management of your financial and legal affairs.
For most of us, when we are contemplating “estate planning”, we think of “Wills”. A Will is a very important estate planning tool that enables an adult to plan for the distribution of his/her estate when he/she passes on. Having a Will also permits the adult to appoint an individual, individuals and/or a corporate entity, to manage his/her estate, called an executor/trustee, while individuals with minor children will also have the benefit and peace of mind of being able to appoint a guardian or guardians to care for their minor children when they are no longer with us.
Developing a Will properly can also result in significant tax savings to an estate and may offer an individual the opportunity to fulfill specific philanthropic wishes. To be considered valid, a Will must also be executed and witnessed as per the provisions of the Wills, Estates & Trusts Act (“WESA”). In British Columbia, this means having two adult witnesses who are not appointed executors/trustees/guardians and/or beneficiaries within the Will as witness who can attest to the execution by the adult of his or her respective Will.
The realities of today’s world of blended families, disinheritance, undue influence, and capacity challenges, along with various other unique family circumstances, necessitate that the drafter of today’s Will also be mindful of the ever increasing potential for challenge to a Will pursuant to the provision of Wills Variation laws in British Columbia and other prospective threats touching on the validity of a Will. Accordingly, the significant increase of estate litigation challenges in our province along with the significant future transition in wealth, requires an even greater attention to ensuring that a Will is properly drafted.
Estate planning for families with a PWD will also require a consideration of the interrelationship between the estate planning and provincial disability benefits. At age 18, a PWD may qualify for provincial disability assistance from the Ministry of Social Development and Poverty Reduction (“SDPR”). Furthermore, in order to qualify for such disability benefits, a person must meet specific financial criteria. For example, a PWD without dependents will be eligible for disability benefits pursuant to the provision of the Employment and Assistance for Persons with Disabilities Act (“EAPDA”), where that individual has liquid assets totaling no more than $100,000, unless such other assets are exempt assets. Exempt assets include such items as clothing, an automobile, and a principal residence.
The EAPDA also has certain rules and requirements with respect to income and assets. Generally, money received by an individual receiving disability benefits will be deducted dollar for dollar from that individuals disability benefits cheque. Such income is called “unearned income”, however, certain income is considered exempt, which will permit an individual to keep that income without losing their disability benefits. For example, SDPR currently permits a PWD without dependents to keep up to $15,000 annually earned as wages (“earned income”). Income from investments or trusts is “unearned income” unless such money is paid from a trust and is used for “disability-related costs” (see below).
This further leads to a consideration of the development of a “trust” within the estate plan for a PWD. Trusts provide a way for PWD’s and their families to transfer and safeguard their assets for meeting disability related costs now and in the future while protecting against vulnerability and undue influence from others. A trust is an effective legal tool which enables a PWD to continue receiving provincial disability benefits where they may be about to receive a large financial gift, an inheritance, or personal injury settlement. More importantly, funds held in a properly designed trust are not treated as an asset of a PWD receiving disability assistance, thus enabling the PWD to continue to qualify for such assistance.
What is a trust? A trust is a legal relationship whereby one person (the “Settlor”), gives assets to a second person (the “Trustee”), to hold for the benefit of a third person (the “Beneficiary”). A trust may be created in a will, when someone dies (“a Testamentary Trust””), or it may be created during someone’s lifetime (“an Inter Vivos Trust”).
A properly developed Testamentary or Inter Vivos Trust will also qualify as an exempt asset for purposes of provincial disability benefits. SDPR trust policy identifies two types of trusts, a Non-Discretionary and a Discretionary Trust. These two terms describe what kind of power/control the trustee has in managing the asset held within the trust.
With a Non-Discretionary Trust, the trustee does not have total authority over how the assets in the trust are managed as the beneficiary may have some input in the decision-making of such a trust either as a trustee or because they originally contributed assets to the trust. Non-Discretionary Trusts are considered an exempt asset pursuant to the provisions of the EAPDA so long as the lifetime total value of capital contributed to the trust does not exceed $200,000. Capital contributions in excess of $200,000 are not exempt as an asset unless special approval is given by SDPR, i.e. where the PWD is able to persuade the Minister that such “disability costs” will be higher.
A Discretionary Trust or commonly referred to as a “Henson Trust”, leaves the distribution of the income and capital of the trust to the complete discretion of the trustee. The disabled beneficiary has no control or the ability to administer funds held within such a Discretionary Trust. Similar to the Non-Discretionary Trust, the Discretionary Trust is also not considered an asset pursuant to the provisions of the EAPDA with one significant difference, there is no limit to the amount of money that can be held within such a trust.
The EAPDA also clarifies what are permitted expenditures from a trust. Specifically, to be considered “exempt”, payments of “disability-related costs” made directly from the trust must fall into one of the following six categories:
a. medical aids or supplies;
b. caregiver and home support services;
c. education and training;
d. renovations to your home to accommodate your disability;
e. necessary home repairs;
f. any other items or services necessary to promote your
There is no set limit on what you can spend from the trust for either of these categories. Examples of item “f” may include memberships in sports or social clubs or vacations. From a planning perspective, this final category offers the PWD with the most flexibility in utilizing such trust funds.
Thus, prior to embarking on trust and disability planning, there are many important decisions one will have to consider. For example, what type of assets will you put into the trust? Who is going to be the Trustee of the trust and who is going to get what is left in your trust after you die? Questions may also arise over the tax ramifications of setting up your trust? Finally, if you are receiving rent subsidy and/or home support services, what effect, if any, will a trust have on your entitlement to such resources?
These and other questions will need to be canvassed carefully prior to setting up a trust. Accordingly, prior to initiating your estate and disability planning, gather the necessary information, consider future events, ask questions, and ensure that you retain the necessary legal and tax advice.
Ken M. Kramer, Q.C, TEP
Principal & Senior Associate Counsel
About the Author: Mr. Kramer, Q.C.’s, law firm, KMK Law, provides specialized legal services in the areas of Wealth Management, Estate Planning, Estate Litigation and Mediation. Mr. Kramer Q.C. is also involved extensively in both his community and the legal profession, having served on numerous Boards and Committees over his 25 year legal career. Currently, Mr. Kramer Q.C. serves as a Board Member with the Vancouver Airport Authority (“YVR”), Vice Chair of the Board of the College of Chiropractors of British Columbia, and a Board Member with Technology for Living.
Mr. Kramer Q.C.’s assistance in providing this information is appreciated. Readers are cautioned that the information expressed in this article should in no way be construed as legal advice.