To provide a regular source of income for a disabled family member, one option is a Henson Trust
In the regular feature Your Questions, Olev Edur provides answers to questions from our readers regarding their rights, personal finance, and estate planning. Here’s one on trust funds.
Q. Our son has been institutionalized for 10 years, and his finances are being handled by the public trustee because he’s unable to handle money on his own. We send him extra money from time to time, but lately we’ve been thinking of the day when we’re no longer around—is there any way to set up a trust or something to dole out the money over time, rather than just leaving him a lump sum and having half of it taxed away in my estate?
A. Yes, there are trust arrangements available for your situation. Specifically, you should look into what’s called a Henson Trust, a form of absolute discretionary trust designed to provide income to a disabled family member without running afoul, in your province, of the Ontario Disability Supports Program (ODSP), which limits such income to $5,000 a year (otherwise, ODSP benefits are clawed back). Under a Henson Trust, the trust’s assets don’t vest with—but can still be used to support—the beneficiary, and so don’t count against ODSP benefits.
You should be aware, however, that any trust is a complex legal entity and that setting one up can cost $1,500 or more, plus ongoing fees in the range of two to 2.5 per cent of trust assets annually for the trustee who administers the plan. If funds are limited, you might look into an “inheritance” or “shelter” trust, which can be somewhat less costly.
In any event, you need to find a trust and estate lawyer who specializes in such arrangements and understands the ODSP rules and other disability-related considerations. You also need to find a trustee—someone who has a basic understanding of trusts and ODSP rules and can manage investments, file the trust’s tax returns, etc.—if not a friend you can trust, then a professional. You can ask your lawyer for further guidance on this issue.