Protecting an Inheritance with the Registered Disability Savings Plan?

I was asked recently whether an inheritance could be placed directly into a Registered Disability Savings Plan ("RDSP") so as to protect those funds from the Department of Community Services. As an aside, if you're somehow not already familiar with the RDSP, you really need to be.  

As long-time readers will know, when calculating an individual's [continuing] financial eligibility to benefits under the Disability Support Program ("DSP") the Department of Community Services ("DCS") looks at both the individual's monthly income and their assets. With some specified exceptions, the Department considers any property owned by a person regarded as having value and available to meet debts and commitments as an asset.

For our purposes, there are four main ways of transferring property or money to a beneficiary under a Will. The executor will be directed to 

• transfer the bequest directly to the named individual;
• hold the funds in the type of discretionary trust used whenever a minor child is a beneficiary;
• hold the funds an absolute discretion trust [better known as a "Henson trust"] or
• direct that the funds be placed in an identified RDSP for the benefit of the beneficiary.**

Unfortunately, only two of the above will protect an asset like an inheritance from being taken into account by under the DSP. Neither a direct transfer nor the creation of the typical and well-used discretionary trust bodes well financially for any beneficiary who is [or will be] eligible for support under the DSP, as both will result in the funds being taken into account and negatively affect the beneficiary's current (and most likely) future benefits. Unfortunately, the more significant the the inheritance, the greater that negative effect will be.  

The key to protecting any inheritance from DCS is to ensure that, from a legal point of view, the funds are never placed in the hands of the beneficiary, meaning the beneficiary has no legal right, either themselves or through an agent, to access those funds, something that both a Henson Trust and a RDSP can do IF the Will is properly worded. 

The Henson Trust                                                                                                                            I am a huge proponent of the Henson Trust in such a situation as it's the safest and most effective way to make sure that the inheritance is protected from the DCS while maintaining quick and easy access to the funds for the benefit of the beneficiary. As discussed many times over the life of this blawg, this is hands down the best way to handle an inheritance for a person who is or will be receiving government benefits.