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Trusts For Disabled Persons

By Author: pooja kapoor
Total Articles: 50

In Ontario and a number of other provinces, if a disabled person has either income or assets in excess of prescribed limits, the person will lose the benefits and services that would otherwise be available to that person under the Ontario Disability Support Plan. Accordingly, being beneficially interested in a trust may be a mixed blessing to a disabled person because it may cause the person to lose the free government services and benefits to which the person would otherwise be entitled. www.insuranceplancanada.com

However, the courts have held that if a disabled person is a beneficiary of a discretionary trust within the meaning described above and the disabled person’s interest in the trust is subject to the discretionary power, holding that discretionary interest in the trust will not, in and of itself, cause the beneficiary to lose access to any government services or benefits. Because the holder of a discretionary or capital of the trust, the person cannot be considered to own any of the trust property or to be entitled to any of the trust income. Only the amounts actually distributed out of such a trust, referred to as a “Henson trust”, to a disabled person will be included in the disabled person’s assets and income in determining whether the disabled person is entitled to government services and benefits.

In typical years, the trustee who hold the discretionary power over the income and property of a Henson trust can make sure that the income and capital distributed out of the trust to a disabled beneficiary never result in the beneficiary’s income or assets exceeding the prescribed limits with the result that the beneficiary would lose access to any government benefits or services in that year. However, if the beneficiary has extraordinary expenses in any given year, the resources of the trust can be used to pay them.

At the time of writing, draft legislation proposes the concept of a “qualified disability trust”, a specific type of entity which would retain access to graduate – rate taxation. Briefly, the proposal outlines a qualified disability trust to be testamentary trust factually resident in Canada and created by a deceased’s will; as well, both the trust and one or more of its beneficiaries must elect that the trust be a qualified disability trust for a given year. Under the proposal each electing beneficiary must be eligible for the disability tax credit in the year f election, and must elect with only one qualified disability trust per taxation year. www.insuranceplancanada.com

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