Receiving an inheritance, either as a beneficiary under a Will or through the proceeds of life insurance, while on Ontario Disability Support (“ODSP”) can require some additional steps and planning to avoid a loss of benefits. Since ongoing qualification for ODSP benefits is based on a financial test, with certain assets being considered exempt assets for the purpose of the calculation, an unforeseen or poorly planned inheritance can cause the recipient to no longer qualify for ODSP.
Depending on how the inheritance is structured, the ODSP recipient may not be at risk of losing their ODSP benefits. If the inheritance is left through the deceased’s Will in an absolute discretionary trust it may qualify as a Henson trust (for more information on Henson trusts see: Wills, trusts and estate planning for people with disabilities and their families). Any amount of funds may be held within a Henson trust without putting ODSP entitlement at risk if the trust is properly drafted and managed. The existence of the trust must still be disclosed to ODSP staff who will review it to ensure the trust satisfies the necessary requirements.
If the inheritance was left to the beneficiary directly and not in a trust contained within the Will then further planning may be necessary to prevent the loss of benefits. An ODSP recipient may place up to $100,000 from an inheritance or the proceeds of a life insurance policy in a trust that they establish themselves. ODSP will consider the funds as income in the month they are received and may allow up to six months for the recipient to establish the trust. This strategy requires the ODSP recipient to be mentally capable of establishing the trust, or to have a legally appointed substitute decision maker who can set up the trust on their behalf. The $100,000 limit on this type of trust also includes the cash surrender value of any life insurance policies owned by the ODSP recipient, so the recipient should be careful to confirm those amounts, if any, before setting up the trust.
If the inheritance received exceeds the $100,000 limit available for this type of trust, the ODSP recipient may be able to place the excess funds in another exempt asset. For example, an ODSP recipient is also permitted to have a Registered Disability Savings Plan (“RDSP”- for more information on RDSPs see: RDSPs: Who is eligible and what are the benefits?). An RDSP has a lifetime contribution limit of $200,000. An ODSP recipient may also own their own principle residence, have a vehicle, or pre-pay a funeral, for example.
While it is always preferable for the person leaving the inheritance to have planned it in a way that minimizes the risk of a loss of benefits to the recipient, unfortunately, this does not always occur. With a little planning, the ODSP recipient may be able to manage their inheritance while retaining their ODSP benefits.
Laura Geddes is an Associate Lawyer who practices in the area of Estates litigation. For more information on this or any other issues, contact Laura via email at [email protected] or call 519-660-7714.