March 14, 2023 | Hosted by Leanne Kaufman
Financial planning is essential for those with special needs to ensure they are cared for, during the parent's lifetime and beyond.
“There really are a lot of local community resources, so for the person with the special needs, you’d deal with an agency for that person, whether it's a residential agency or something. Those organizations are going to have resources, where you will have people who can sit down with you to start to talk through some of these issues.”
Hello, and welcome to Matters Beyond Wealth with your host, Leanne Kaufman, president and CEO of RBC Royal Trust. For most of us, talking about subjects like aging, late life, and estate planning isn’t easy. That’s why we’re going to help get the conversation started on this podcast while benefiting from the insights and expertise of some of the country’s top experts. We want to bring you information today that will help to protect you and your family in the future. Now, here’s your host, Leanne.
Every parent wants what’s best for their child, and wants to set them up for success during the parent’s lifetime and beyond. When special needs or disabilities add challenges to ordinary life for a child or frankly for any family member, considering how they will be cared for physically, emotionally, and financially is of even greater concern. This means that particular attention has to be paid to financial and estate planning when a loved one has these needs.
Hello, I’m Leanne Kaufman and welcome to RBC Wealth Management Canada’s Matters Beyond Wealth. My guest today is lawyer Rachel Blumenfeld, a Partner at Aird & Berlis LLP, where she focuses on estates, tax and succession planning. Rachel is a member of the firm’s Estates and Trusts and Tax Groups and Co-Chair of the Charity and Not-for-Profit Law Group. Rachel frequently writes and speaks on topics involving tax and estate planning, life insurance and business succession planning and charitable giving. And part of her work involves helping families with disabilities plan and structure their estates appropriately.
Rachel, thanks so much for being here with me today to discuss how to plan for family members with special needs and why this matters beyond wealth.
Thank you very much, Leanne for inviting me to this session today. This is a really important topic. It’s one that I enjoy talking to clients about when they have these needs and helping them work through some of their issues.
It’s a pretty big topic and I would say probably more than we can really adequately cover in the short time that we have together, but let’s just start with some basics. What’s the very first topic that you discuss with people during an estate planning conversation when they have a family member with a disability?
Well, I think I first start off with really trying to understand what the issues are for that child: what types of disabilities that they may have, whether it’s cognitive or simply some physical disabilities, because that really will determine what kind of planning we do. Whether there’s a lot of financial planning that needs to be done, who will be the person in the family or outside of the family who will ultimately take care of that child once [if] the parents are no longer able to or once they’re gone, how do they deal with financial issues? Who will assist the child with financial decision making if they’re able to make some decisions? So those [questions] are to really get an understanding of what’s going on in the family before we even delve into the kinds of planning that we would do.
Yeah, it’s a great point to think about, not all special needs or disabilities would actually even impact someone’s ability to make their own financial decisions or make good financial decisions. But, when I think of planning for family members with special needs or disabilities, the first thing that pops into my mind, and maybe it’s my industry bias, is trusts and thinking about how trusts are such a great and flexible vehicle and maybe more skewed towards those whose disabilities do impact someone’s ability to manage their own finances. But maybe we could just talk about trusts for a couple minutes and you can help us explain how does a trust help protect or support a family member or an individual that has some sort of special needs?
Well, I think first of all, the trust will ensure that there’s somebody else who’s looking after the investments, especially if this is a trust that’s going to have to last for the lifetime of the child where it’s invested properly and prudently and distributed over a period of time so that there’ll be money left over each year to keep reinvesting and so that it will last while the child needs it. Sometimes I find people are concerned that their child might—if their child had access to a fair chunk of their inheritance outright—that they would be taken advantage of. You’re able to protect the child from predators and unsavory friends and other relatives. And also, and this is probably the thing that people think of or about first is how to protect benefits that they’re getting from the government. If they’re on provincial disability pensions or benefits, you want to ensure that that will continue if it’s needed. So that having a trust—(and I think we can talk about this a little bit more later—but having a trust that holds those assets for the child in many cases will protect the ability to continue to receive those benefits.
Let’s go a little deeper on that one and we won’t go into what is a trust and some of those basics, we actually did an earlier podcast on that topic with our common friend and colleague, Elena Hoffstein but maybe we could just talk for a minute about those government benefits and how some of the planning revolves around protecting those. Maybe let’s start for those who aren’t aware, what are some of those tax or government benefits that are available? And I know everybody’s listening from different provinces, so what happens in one province isn’t identical but in broad strokes.
Broadly, each province is going to have some kind of program or plan where there are monthly benefits available to people with disabilities. Again, it depends on the type of disability in order to qualify, but I think pretty much across the board, across the country, there are benefits that are available at different levels. For example, in Ontario where I live, there’s something called the ODSP, the Ontario Disability Support Plan. But essentially in most of the provinces but not all, where someone inherits an amount from a parent, if that amount is set up in a trust under the parent’s Will, or it could also be set up during the parent’s lifetime, if certain wording is used that ensures that that child doesn’t have direct access to those funds, then they can continue to receive their provincial benefits.
This is important, not just for the funds that come through because it’s frankly not a very large number, but it does ensure that they’re entitled to drug benefits to other types, [like] dental, and to some programs. There are, for example, some residential programs that you can’t necessarily access if you’re not on the provincial benefits. So those can be important and even more important than the monthly amount. What the trust will do is it will keep those assets aside. There’ll be a separate trustee for that trust. They’re usually referred to as Henson Trusts, which is a term, it’s just based on the case that sort of initially allowed this to happen. You still have to be careful that whoever is managing that trust understands how the benefit program works because they can still only distribute a certain amount each month or over a course of the year to that person. It does help to maintain that provincial benefit, but there still are restrictions on it.
It is a little bit of a complicated area, and I think you and I would both agree that anyone who’s got this happening in their lives should probably seek out expert advice on making sure that the planning is done in a way that it doesn’t compromise those benefits because I think we’ve all seen, we’ve both anyway certainly seen examples of where it wasn’t planned properly and then it did have the negative consequences of cutting that client or that beneficiary off from things that they should have otherwise been entitled to. Then there’s the disability tax credit, which is a whole other topic that would probably take us 30 minutes or more to talk about, but I think that’s one that’s not really well understood or utilized. In fact, at one time I heard a figure that something like only 30% of people who qualify actually benefit from it. Can you talk about that?
Yeah, that would be at the federal level. If you qualify for the disability tax credit, which basically is an application form—it is somewhat onerous, you do need doctor’s letters and to go through that process and in certain instances, you may have to reapply after a number of years—but once the person qualifies, it does open up quite a lot of benefits for them, including one that’s actually I think is very important, which is a registered disability savings plan. If the person is eligible for the DTC, (there’s lots of acronyms and abbreviations in this area), if you qualify for the Disability Tax Credit, then that person can have what’s called an RDSP. This Registered Disability Plan, which you can set aside funds for that person, and more importantly, there’s a lot of government grants that are available. You put in a $1000 in a year, you’ll get $3,000. This can build up an additional pot for that person. And importantly, it does not affect (in I think all the provinces), it won’t affect their provincial benefits, so you can continue to get the provincial benefits. You have this RDSP and then ultimately you can draw on that as well as drawing on the provincial benefits. So it can be quite beneficial for people.
And not something that you want to miss out on. So again, important to speak to someone and get the right advice. What about issues tied to guardianship of the special needs or disabled person themselves? Can a parent or another family member arrange for a guardian who can step in once the parent themselves is gone? And does it matter depending on the age of the child?
Again, I think that this is really [at the] provincial [level]—it’s going to be different in each of the provinces—but for example, in Ontario, the parent would be considered the guardian of the minor child. Unfortunately, once that child becomes an adult, so at the age of 18, they may need, depending on the issues, the parent may actually need to go to court to become a legal guardian, which can be an expensive process, and it’s not always necessary. It really depends on the situation of the child, whether there’s financial issues that a parent or somebody would need to take care of for the child. In terms of being able to appoint someone to become the guardian when the parent dies, in Ontario at least, at this point, you can’t really do that.
You can’t go to court and become a guardian and have a potential alternate guardian down the road so that if a parent becomes a guardian and then they pass away or they’re no longer capable, the sibling, for example, would have to come back in and get that guardianship. There are a few situations that I have seen where the parent and the sibling go on at the same time, especially if the parents a bit older already when they go forward with that and that may help smooth that transition.
Then there’s a bit more continuity and that makes sense.
In Ontario, and I think this is probably similar in most of the provinces, there are two separate applications or two separate guardianships that you would try, [that] you’d go to court for. One is on the financial side and the other is on the personal care side, and you don’t necessarily need to do both. So if there isn’t an issue around the financial side, you may only need to become the guardian of a person.
Again, comes back to your very first comment about what exactly are the needs. It’s not one universal situation we’re dealing with here. We talked about trusts and we talked a little bit about guardianship and all those are of course like fiduciary obligations where someone is either stepping in the shoes of the decision maker or making decisions on their behalf. If it’s not going to be the parent themselves, I think that question of who is going to be the trustee and who is going to be the guardian is really, really important. So what kind of conversations do you have with clients when it comes to choosing a trustee or choosing a guardian?
That is probably the most difficult and the biggest part of the conversation, and it’s so interesting to hear what different families do. In some cases, it’s been really obvious it’s going to be the siblings and the siblings are part of the conversation already. In other cases, I’ve had family members say, I don’t want to burden my other children, so we need to find a professional trustee and this would be for example, for the Henson Trust or for a trust that’s set up under a Will. So whether it’s a lawyer or an accountant or a trust company going on as a trustee, and often when it’s a third party, they’ll also want to involve a sibling or another family member.
Whether it’s as a co-trustee or we put something in to ensure that the professional trustee will consult with the child, and sometimes it’s the sibling of the child and sometimes it’s the sibling of the parents or it’s an aunt or uncle that gets, that’s involved. It really depends on the family situation. The hardest ones that I have dealt with have been when there’s only one child and that child’s got the special needs and there aren’t siblings and there isn’t a lot of other family members. Those are tough.
It must be so hard for those parents, first of all to admit that there will be a time when they won’t be around to help that child and then to think about who they trust enough to do it when they’re no longer here.
And a lot of it really, I would encourage people to reach out to their circle of family and friends and start those conversations and so that it’s not naming somebody in your Will as the trustee of a trust for your child without them being aware of it.
Yes, that’s so important and something we talk about all the time is, do not keep these things a secret, do not make them a surprise. You’re not setting anybody up for success when you do that.
There’s so much to consider here, I feel like we’ve barely really scratched the surface, and for those who aren’t really well versed in these matters, I’m sure it is all very, very overwhelming. But just for the purposes of our conversation today, if there’s just one thing you hope people can take away or one thing that they can do to start their planning journey if they find themselves in this situation, what would you suggest that one thing might be?
Apart from first talking to your family, bringing in the other family members, I think there really are a lot of local community resources, so for the person with the special needs, you’d deal with an agency for that person, whether it’s a residential agency or something. Those organizations are going to have resources, where you will have people who can sit down with you to start to talk through some of these issues, before you go to the lawyers and the accountants. You do ultimately need to talk to, and deal with a lawyer who knows, who understands these issues and knows how to do the planning on the financial side and is also able to talk through some of the other issues in dealing with the personal care and those types of issues that come up.
And I would add your financial professional as well, somebody that understands the financial planning side of things because you’re going to want to see how that models out for the future.
On that point, sometimes even though you have all these provincial benefits available, financially, once the parent passes away, there’s a significant estate that will be available, whether it’s through insurance or other financial products, RSPs that can be left for the child. You really have to think through whether it makes sense to use those assets because those are going to far outweigh, in a lot of cases, far outweigh the amount that you’re getting from the province. So you do need a financial person to walk through that with you.
Lots of interconnected moving pieces and just points to the benefit of professional advice and of the kind that you and that we at RBC can bring. Well, thank you, Rachel. I mean, again, we barely scratched the surface, I think, but thanks so much for joining us today to talk about how to plan and things to think about when planning for family members who have special needs and why all of this matters beyond wealth.
You can find out more about Rachel on LinkedIn or at airdberlis.com.
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Until next time, I’m Leanne Kaufman. Thank you for joining us.
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