All About Everything – Children with Disabilities

What is the issue?

Families with children with disabilities or special needs may not always understand the full range of estate-planning options available to them.

What does it mean for me?

This article outlines the landscape of estate-planning tools available in Canada as a way of highlighting some of the most important issues families should consider when drawing up an estate plan.

What can I takeaway?

Preparation is crucial for families who need to plan for the future of a child with disabilities, and they will benefit from the guidance and support of a trusted advisor.

Know your options


The health and wellbeing of a child with disabilities tends to remain a core concern for parents throughout their lives. However, at some point, typically as they approach retirement, the focal point of a parent’s concern shifts from the immediate comfort of their child to anxiety about what will happen after they are gone.

Estate planning professionals should always ask clients about family members with special needs. A surprisingly large number of households are affected and parents do not always appreciate the full range of estate-planning options available to them.

In Ontario, for example, provincial statistics show that nearly 400,000 people receive benefits under the Ontario Disability Support Program (ODSP),1 which provides monthly payments of CAD896 or CAD1,169 depending on their living situation (i.e., whether their accommodation is rented). However, the ODSP is only open to individuals aged over 18.

After accounting for minors and those who have transitioned to the old age security (OAS) pension and guaranteed income supplements (GIS) available to Ontarian seniors, around one in ten of the province’s 4.5 million households include a person with disabilities. This article explores some of the issues those families should consider when drawing up an estate plan.


Perhaps the biggest piece of any estate plan involving a person with a disability, the Henson trust, has its roots in the ancient ‘vow of perpetual poverty’ trusts that were set up for hundreds of years by the families of children who entered religious orders.

The modern version gets its name from Ontario v Henson,2 the 1989 Supreme Court of Ontario case that recognised this special type of non-vesting testamentary inheritance of a person with disabilities, while preserving their right to provincial disability benefits.

The asset limit imposed by the ODSP for individuals to continue receiving payments, as well as drug and dental coverage, was recently as low as CAD5,000. However, even at the current CAD40,000 level, it still precludes recipients from receiving a sizeable inheritance in the normal course.

Whereas trustees can normally be compelled to exercise their discretion over the property in a trust under the right circumstances, the key distinguishing factor of a Henson trust is that the trustee has absolute and unfettered discretion over the distribution of funds to the beneficiary.

For that reason, the choice of trustee is critical. Testators often select a sibling or close family member of the beneficiary to administer the Henson trust, with the assistance of a letter of wishes setting out their thoughts on how the money should be used for the benefit of the child with special needs.


There are several tax credits and benefits offered by Canada’s federal government that are available and should be taken into consideration when advising a family that includes a person with disabilities.

For example, the disability tax credit (DTC) can be claimed by an individual with a medically certified disability or by the individual’s supporting family members. In addition, the caregiver tax credit (CTC) is available for anyone who supports a spouse or dependant with a physical or intellectual impairment.

Parents of a child with disabilities often stop claiming the CTC after the child turns 18 or moves into supported living, even though the Canada Revenue Agency (CRA) removed the requirement that a claimant must reside with the person they are caring for in 2017.

Fortunately, the CRA allows for retroactive adjustments to tax returns filed within the past ten years.


Applicants approved to claim the DTC are also eligible to open a registered disability savings plan (RDSP), which opens up a new set of possibilities for parents seeking to secure the future of a child with disabilities.

Even if the plan holder contributes no funds, the Canadian government will add CAD1,000 per year in bonds to the RDSP for 20 years or until the beneficiary turns 49. In addition, a CAD1,500 annual contribution attracts a government grant of CAD3,500 a year for up to 20 years.

If the RDSP is properly invested and fully funded, beneficiaries can accumulate a substantial sum. With the assistance of the CAD90,000 matching government funds, if an account is opened when the child turns 18 and CAD1,500 a year is contributed for 20 years, with a maximum contribution limit of CAD200,000, the final value of the plan could exceed CAD700,000 by the time the child (now an adult) turns 60 (assuming an annual return rate of five per cent).

At that point, the prescribed lifetime disability assistance payment formula, which dictates how the plan is paid out over a 24-year period, would result in annual payments of around CAD30,000.

RDSP payments do not affect ODSP eligibility, but beneficiaries must take care with early withdrawals as the government contributions are subject to a ‘last in, first out’ clawback during the ten-year vesting period.


When it comes to how best to manage the affairs of a child with disabilities, the key factor is their legal capacity.

For persons with disabilities who do not have serious cognitive impairments, the ability to handle their own affairs may not be an issue. However, they may wish to appoint a power of attorney (POA) for property to help them with their finances and bank accounts, as well as a POA for personal care, to handle decisions regarding healthcare, nutrition, shelter and clothing.

The parents of a legally incompetent child (even one aged over 18)3 can usually get by in dealings with government officials and healthcare professionals without the intervention of a court. However, they should turn their minds towards legal guardianship sooner rather than later to ensure that their child’s best interests are taken care of after they are gone.

Guardians are appointed via a court application, typically identifying friends or family members to be appointed alongside the individual’s parents. The process involves two separate professional assessors who must perform mental capacity assessments to confirm that the individual is incapable of managing either their property or personal care.


Clients with modest estates may consider funding a Henson trust for a child with disabilities via a whole life or universal life insurance policy.

At current rates, a 50-year-old female could obtain GBP100,000 of universal life coverage for less than CAD1,500 in annual premiums. If the individual still lives with their parent/guardian and receives benefits under the ODSP, they could potentially fund the annual premium themselves within a couple of months each year, guaranteeing an inheritance that would take decades to accumulate via saved premiums.


For those with more sizeable estates, and particularly those with large registered retirement savings plans (RRSP) or registered retirement income funds (RRIF), a lifetime benefit trust (LBT) is a personal testamentary trust that allows them to mitigate full taxation at the highest rate upon death.

Designed specifically for beneficiaries who are financially dependent and cognitively impaired, the LBT receives the testator’s RRSP or RRIF funds as a tax-free rollover, which are then used to purchase a qualifying trust annuity.

Periodic payments from the annuity are made to the LBT, depending on the age of the beneficiary, but the income is automatically deemed income of the person with disabilities and the taxes are paid by the trust.


Following amendments to Canada’s Income Tax Act in 2016, graduated rate taxation was eliminated on most types of testamentary trusts in Canada, which are now taxed at the top marginal rate of around 50 per cent.

However, a testamentary trust with a beneficiary approved for the DTC may be deemed a qualifying disability trust (QDT), which were exempted from the rule change. That means the trust may declare income taxed in its own hands at a rate of 22 per cent for roughly the first CAD50,000.

Nevertheless, it may be more efficient to make use of the preferred beneficiary election to attribute trust income to the child with special needs and reduce the tax payable via their available tax credits, at least until they turn 65, when the GIS clawbacks kick in on attributed income.

Even if the QDT election is not used for income tax purposes, it may be beneficial if the testamentary trust holds real estate, since any property in the trust qualifies for the principal residence exemption from capital gains tax if the beneficiary qualifies for the disability tax credit and normally resides in the property.

Source: Ken Pope, Dianne Verano and Peter Zachar, ‘Know your options’, STEP Journal (Vol30 Iss3), pp80-81.

[2] (1989) OJ No 36 ETR 192 (ONCA)
[3] Legally incompetent means a person who has been found incompetent because of a mental condition which renders them incapable of taking care of their person or managing their estate. 

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