Disability Trusts: providing for disabled beneficiaries

Langley and Surrey Wills, Estates & Trusts Lawyers

Government disability assistance depends on income and assets

Commonly, access to government or other benefit programs depend on the applicant falling below certain income and asset thresholds. Whether a person is entitled to the benefit depends on how much income they make and how much their personal assets are worth. The rationale is that people with sufficiently high income or who own enough assets do not need access to government benefits as much as a person with lower income or less assets.

For example, the BC government offers income assistance to adults with disabilities who qualify under the Employment and Assistance for Persons with Disabilities Act. To access the assistance programs under this Act, applicants must meet certain income and asset criteria.

Increasingly, will-makers are interested in providing for disabled beneficiaries without jeopardizing their access to government assistance. If a will-maker gives a large lump-sum gift to the disabled beneficiary or makes them a beneficiary of a fixed income trust, this could result in a loss of benefits.

Can being a beneficiary of a will disentitle a disabled beneficiary from government assistance?

In short, yes. If the inheritance is large enough, it can cause a disabled beneficiary to exceed the maximum personal assets threshold. Alternately, a trust (including a trust in a will) could cause someone’s income or assets to exceed the allowable threshold. In both cases this could disqualify the disabled beneficiary from receiving government assistance, or it could reduce the amount of benefits to which they are entitled.

Fortunately, courts have recognized trust structures in both living trusts and wills to provide for disabled beneficiaries without disqualifying them from government assistance programs.

Can my will provide for a disabled beneficiary without disqualifying them from income or asset-based assistance?

Yes it can. A will or a living trust can include special terms to avoid causing a beneficiary’s income and/or asset levels from exceeding the allowable thresholds to be eligible for benefits. Such trusts are sometimes called Henson Trusts or more commonly in BC, disability trusts.

A disability trust authorizes the trustee (or in the case of a will, the executor) to make discretionary payments to a disabled beneficiary. When drafted correctly, the beneficiary has no control over when the payments are made or how much they receive. Instead, the trustee or executor has full control over whether or not to make a payment to the beneficiary, how much to pay, and the timing of any payment.

Importantly, a trustee or executor must also be authorized to choose to pay nothing at all to the disabled beneficiary. Thus, in a correctly drafted disability trust, the beneficiary is not entitled to receive anything from the trust unless and until the trustee or executor decides to give them something. 

The hallmarks of a disability trust were affirmed earlier in 2019 by the Supreme Court of Canada (see S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4). They are:

  1. The trust must give the trustees the exclusive and absolute discretion as to whether payments are to be made to the beneficiary, and the timing and amount of payments, if at all; and
  2. The structure of the trust must prevent the beneficiary from terminating the trust unilaterally. In legal terms, this means the trust must avoid the rule in Saunders v. Vautier. Saunders v. Vautier is a historical trust law case that, in a nutshell (the mechanics of the rule can be quite complex) enables a beneficiary or multiple beneficiaries acting jointly to terminate a trust and demand that the trustee transfer the trust property to the beneficiaries. For a disability trust to function properly, the beneficiary must not be able do this. In many cases, this can be accomplished by providing that the trust property will benefit the disabled beneficiary during their lifetime, and afterward be gifted to someone else.

It goes without saying that the language and provisions of disability trusts must be very precise. For this reason, disability trusts usually require the assistance of a lawyer. There may also be other important considerations before creating a trust, such as reviewing the tax and financial positions of the persons involved.

This article is intended to provide general information and should not be substituted for legal advice. If you are interested in learning whether a disability trust can help you, please consider speaking to a lawyer.

Taylor & Taylor Law Corporation provides legal services in the areas of business law, wills, estates & trusts.

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