In its recent ruling, the Supreme Court of Canada (SCC) finally settled that the assets held in a Henson trust do not belong to the person receiving provincial disability benefits and should not impact the benefits that they receive, Ottawa disabilities and estate planning lawyer Kenneth Pope tells The Globe and Mail.
In the decision, the SCC ruled that the inheritance a father set up through an absolute discretionary trust for his daughter was not an asset that disqualified her from receiving a rental housing subsidy from the Metro Vancouver Housing Corp., the article states.
In March, the federal government introduced a proposal in the budget to remove the limitation on the amount of time that registered disability savings plans (RDSPs) are allowed to remain open, with accumulated grants and bonds intact, even if someone loses eligibility for the disability tax credit (DTC), according to the article.
“Under the existing rules, losing eligibility for the DTC meant that the investor had to close the RDSP by the end of the next year and repay all grants and bonds paid into the plan during the past 10 years,” the Globe reports. “The rule would take effect after the 2020 taxation year if the budget passes.”
“[The budget proposal is] excellent,” says Pope, principal of Kenneth C. Pope Law. “The next thing I expect is that [RDSPs] will become ‘designatable,’ and that instead of just the parents being authorized account holders, it will be other family members.”
While the SCC decision and the budget proposal make it easier to plan for clients who have family members with disabilities, some are calling for further amendments to the tax legislation, starting with the reinstatement of a policy that was available to families until 2016, the Globe reports.
“Under that rule, if a disabled individual was not deemed competent to own property but could live independently, the family could set up an inter-vivos trust to own a home for the individual,” the article states. “However, when inter-vivos trust rules were tightened to prevent foreign homebuyers from claiming the principal residence capital gains exemption, people with disabilities living in homes owned through inter-vivos trusts lost that exemption as well.”
Pope says that change was too “broad a stroke of the paintbrush.
“There should be an exemption for people with disabilities who reside in the home owned by the inter-vivos trust, and the reason that this would be fair is that you can still do this for your child with a testamentary trust. This seems somehow an inequity to me and illogical,” he says.
Pope says he would also like the government to revisit DTC qualification rules which currently require that the recipient’s impairment be both prolonged and present at least 90 per cent of the time.