LifeTRUST Planning © 60 Harrison Drive Newmarket, Ontario L3Y 4P4 Tel:905-836-5460 Fax:905-836-5458 Toll Free 1(800) 638-7256 Email email@example.com Web Site www.life-trust.com
FREQUENTLEY ASKED QUESTIONS BY PARENTS OF PEOPLE WITH DISABILITIES ABOUT ESTATE PLANNING
Do I have to disinherit my child in order to keep his/her share from going to the government?
Absolutely not! There are currently acceptable estate planning procedures whereby your child can participate in the benefits of your estate. Familiarize yourself with these procedures before making a decision to disinherit your child.
How can I be reasonably certain that the share which I leave to my child will be appropriately expended, will be available throughout my child's lifetime, and will not make my child ineligible to receive government financial support programs?
In order to answer these questions, you must be familiar with the concept of a trust which is an estate planning tool by which one person has the authority to manage and invest the funds of another. There are only three parties to a Trust arrangement: (1) the Settlor; (2) the Trustee; and (3) the Beneficiary. The Settlor is the person with the assets who by agreement sets up the Trust. The Trustee is the person who receives the funds from the Settlor, invests them, and has the obligation of seeing to it that the terms of the Trust are carried out. The Beneficiary is the third party for whom the entire Trust Arrangement is created and for whom the benefits are intended. If the Trust is created or takes effect during your lifetime, it is referred to as a "Living Trust". It is most often created by a written agreement between the Settlor and the Trustee whereby the Trustee agrees to accept the terms of the Trust arrangement and administer it accordingly.
A trust arrangement may also be created in your Will in which case it is referred to as a Testamentary Trust. In this situation, the Trust is not created nor does it begin to operate until your death.
The term of the Trust (i.e., the instructions that you give to the Trustee for future operation of the Trust) may be as numerous and varied as your imagination permits in order to specifically tailor the Trust arrangement to achieve your intent. The freedom in designing your Trust arrangement is subject only to meeting certain guidelines or laws existing in the Province where the Trust is created and administered.
A typical Trust arrangement in its briefest form might be summarized as follows:
I give the sum of $25,000.00 (or 1/4 of my estate or 25% of my estate) to the no name Trust company, as Trustee, for the benefit of my son, John Smith, to be administered as follows: You may spend the principal, and/or income of the Trust for vacations and recreational activities for John Smith during his lifetime as you may deem advisable. You may not spend the assets of this Trust for his basic care and support which is being provided through government assistance programs. When my son dies, if there are any Trust assets left, give them to his brothers and sisters.
This Trust arrangement should meet most of your concerns. Since the no name Trust Company is obligated to abide by your wishes as set forth in your Trust, you can be reasonably assured that it will spend the money for vacations and recreational activities for your child and will refrain from spending the assets for his basic support and maintenance. The Trustee has no ulterior motives except to administer the Trust the way you have directed. As long as the money holds out, you can be assured that your child will be provided with vacation and recreational activities long after you death. In order to appreciate the final advantage of the Trust arrangement, you should be aware that the Trust may be structured in such a fashion so that the principal and income of the Trust estate is not considered to be the property of the beneficiary. After all, she/he is only entitled to receive what the Trustee decides to give her/him within the framework of the instructions you have given the Trustee. Furthermore, your child has only a lifetime interest in this trust and his brothers and sisters may expect to receive whatever is left in the Trust estate upon the death of the primary beneficiary. For these reasons, the government, or other creditors of your child, should no be able to reach the Trust assets to satisfy their claims. Since the law recognizes that the Trust assets, until distributed, are not the property of your child, those assets should not be taken into consideration in determining whether your child is eligible to receive government financial support such as Ontario Disability Support Program.
Can I achieve the same result by giving my child's share to my other children with instruction to use the money for the benefit of their sibling (morally obligated gift)? (Secret Trust)
This approach is full of dangers and traps which have absolutely nothing to do with the trustworthiness of your other children. With no formal Trust arrangement, your child's share might very well be commingled or mixed with the assets of your other children. Should the child holding the assets be involved in a divorce, your child with special needs' share might very well end up in the hands of your former son-in-law or daughter-in-law. An unexpected death could result in your child's share being included and distributed as part of someone else's estate, totally defeating your intentions. This arrangement may violate regulations under the Succession law Reform Act.
Who should I name as trustee? A Trust Company or a family member?
The Trustee may be a Trust company or an individual 18 years of age or older. The Trust company offers an element of stability and expertise in managing other people's assets. However, a Trust company trustee often lacks a personal relationship with your child and may be totally unaware of your child's particular needs. An individual family member has the benefit of the personal relationship and knowledge of your child's needs. On the other hand, if that family member does not live in the same area as your child, his/her value would be greatly diminished.
One solution would be to direct your Trust company trustee to confer with other family members regarding the needs of your child. Several alternatives are available, and you should thoroughly discuss the selection of the Trustee with your lawyer at the time the trust is created.
Are there lawyers available with special knowledge regarding estate planning for parents of children with special needs.
Yes, but you must be certain that the lawyer you select is aware of the unique aspects of planning for people with disabilities. You should be aware that the estate plans for people with special needs are unique and that most competent lawyers who are involved is estate planning should immediately recognize the situation. What they may lack is knowledge regarding the specific needs of your child. However, you can supply this information at the time of your estate planning conference.
FUTURE PLANNING CHECKLIST REVIEW
IDENTIFY ANY ITEMS IN THE FUTURE PLANNING CHECKLIST THAT ARE IMPORTANT TO YOU AND YOUR CHILD AND NOTE THEM BELOW. THIS WILL HELP TO DETERMINE WHERE YOU ARE IN THE FUTURE PLANNING PROCESS.
* GENERAL INFORMATION
* INFORMATION REGARDING YOUR WILL
* INFORMATION PERTAINING TO YOUR CHILD’S PERSONAL PROTECTION
* INFORMATION PERTAINING TO YOUR CHILD’S FINANCIAL PROTECTION
* INFORMATION PERTAINING TO YOUR FUTURE PLANNING DOCUMENTS
* FAMILY ESTATE PLANNING INVENTORY
Copyright © LifeTRUST Planning All rights reserved, including the right to reproduce this booklet or parts thereof in any way or form.