Having examined the issue of guardianship, we will now turn to financial planning for our children with disabilities.
Life InsuranceI have written previously about the importance of
life insurance when planning for the future of your child with a disability. Think of it as your first line of defence. Or, perhaps, offence.
The first issue here is the type of life insurance you hold. Hopefully you have purchased whole life insurance as opposed to term insurance as term insurance will expire within a set number of years (20, for example) and after that, assuming you're still alive, you will no longer have any coverage.
In my
previous post on this topic, you will read about "T 100" insurance" and "T100 joint and last" insurance. But the main point is this - look at your life insurance as not just a vehicle to protect your family in the event of your untimely demise (okay, is there really such a thing as a timely demise?!) but also as a source of funds to be placed in trust (or some other vehicle) to provide some amount of financial security for your disabled child in the future.
So, assuming you have term life insurance (with or without another source of funds for your child's future security), what is the best way to deal with these funds?
Unfortunately, when we get down to the nitty gritty, I must direct you to a financial planner, this being out of my area of expertise and everyone's financial situation being different.
I can, however, lay out a few known options for you.
The Henson TrustI have written a fair bit on the Henson Trust in the past, so if you're not familiar with of what we speak, I would suggest you read
my posts here.
Unfortunately (
thanks a lot, Google Pages), many, if not all, of the READ MORE links in those older posts no longer work. And, in all honesty, I have neither the time nor the inclination to attempt to rewrite those posts at the moment (come to think of it, I very much doubt that I even have my old
notes that so many of those posts were based on). So we will just have to do the best we can.
Most people are familiar with your typical garden-variety discretionary trusts, the ones you often see in Wills if a minor child is to be a beneficiary of the estate. Such a Trust allows whomever has been appointed as Trustee to decide what types of investments to invest in and whether and when to distribute money to the beneficiaries. We call such Trusts "
discretionary" because the Trustee exercises his (or her) discretion in distributing the trust funds.
Buy the problem with your typical garden-variety discretionary trust for our children with disabilities is created by a regulation passed pursuant to the
Employment Support and Income Assistance Act which reads as follows:
58 Trust Money
Where a sum of money is set aside in trust for an applicant or recipient or a spouse or dependent of an applicant or a recipient by a court or a person other than the applicant or recipient, assistance shall not be granted for the applicant or recipient where it is feasible to obtain support for himself or herself or his or her spouse or dependent child from the sum set aside.
A discretionary trust is caught by sec. 58 of the Regulations (and will thus end your child's right to obtain social assistance or other benefits under the
Services for Persons with Disabilities program until the trust fund has been depleted) because with a discretionary trust, the beneficiary still has the legal right to go to court and have the Trustee's exercise of discretion analyzed to ensure that it has been exercised reasonably. And if the court finds that the Trustee has acted unreasonably, it can compel him to pay benefits to the beneficiary.
The
Henson Trust, however, is a creature of a different sort. As what is known as an "
absolute discretionary trust" (meaning that the Trustee cannot be compelled or forced to disburse money for the support of the beneficiary), your child, as the beneficiary of such a trust, will have absolutely no legal right to go to court and force the Trustee to provide any money to her. And, thus, it can no longer be said that it is "feasible" for the beneficiary of the trust to "obtain support for himself or herself".
Despite protestations from the Department of Community Services otherwise, the Henson Trust
will should work to protect the beneficiary's access to government benefits in Nova Scotia. I say "should" because the issue has yet to be tested in court in Nova Scotia but the consensus of legal opinion is quite confident that, were it to be taken to court, the Henson Trust would
not be caught by sec. 58. And this is a very good thing as it provides a vehicle to distribute those life insurance proceeds (along with any other assets) to your child without affecting their right to government benefits.
The one rather large "catch" with the Henson Trust, however, is that since the Trustee has been granted "absolute and unfettered discretion" (just a portion of the magic wording necessary to create a valid Henson Trust), theoretically, the Trustee could decide to never disburse any money from the trust to your child and there would be nothing that anyone could do about it.
For this reason, you will want to choose your Trustee with great care. You are giving them am immense amount of power over your child's life.
But all is not lost even if there is no one in your circle of family and friends whom you trust (or is willing) to take on this responsibility. A trust company can always be appointed as the Trustee. There are, of course, pros and cons to proceeding this way.
On the plus side, appointing a trust company may ensure experience, expertise, impartiality, understanding, permanence and availability. But on the other hand, trust companies don't work for free and their fees will, most likely, end up being paid out of the Trust itself. Also a trust company will, obviously, not know and understand your child and their needs the way a family member or close friend would.
But. If there are no other options, there are no other options. And, although I would strongly recommend you discuss your own personal financial situation with a financial planner, given the improved quality of life a Henson Trust can give your child over their lifetime, I would think it would be more than worthwhile to proceed with a trust company than to give up on the Henson Trust option completely.
For more information on the Henson Trust, I would highly recommend the following articles: - WILLS, TRUSTS, AND ESTATE PLANNING: A GUIDE FOR PEOPLE WITH DISABILITIES AND THEIR FAMILIES
(Authored by Paul C. Strickland and Michelle Moro of Siskinds LLP)
Covering Wills, Powers of Attorneys, the Henson Trust, Guardianship and what you need to think about before you visit a lawyer in regard to these topics, this article also covers in some detail the issue of picking the trustees for a Henson Trust.
- The Henson Trust Handbook
One thing to be aware of when reading the Handbook is that there is a definite slant towards the Ontario system and the rules under the ODSP system as to allowable assets are different than those in Nova Scotia.
The bottom line relevance of this for us is that the way the world currently works is that when money is placed in a Henson Trust (aka an absolute discretionary trust), the income from that inheritance is taxed at a beginning (lower) marginal tax rate. This is a special stipulation that only applies to trusts created by a Will (testamentary trusts).
