It's always the thought that counts. Kenneth Pope explains how to give or leave gifts for children with special needs. A common thing to consider if someone wants to leave a bequest for a child who has passed on is whether to have the inheritance of the parent received in the form of a Henson Trust with the parent being a trustee and a beneficiary.
Family and friends often want to give or leave a gift for children with special
needs. If they want to do it while alive the personal asset test for ODSP is now $40,000 as of September 1st, 2017 and the gifting test is now $10,000 over 12 months. More commonly, these gifts are after someone has passed on.
For example, a grandparent may wish to leave a bequest for a grandchild with special needs. But in the context of that discussion, what we consider with the parents of the child who would then have a discussion with their parents, the grandparents, is whether to have the inheritance of the parent - received in the form of the Henson trust - with the parent being the trustee and a beneficiary along with the child with special needs.
Otherwise what happens is the parent of the child with special needs receives an inheritance of, let's say - $200,000. They invest the money at 4%, they receive $8,000 of income; they pay taxes at, at least 33% - so approximately $26,000 of taxes every year. If instead their inheritance was received in the form of the Henson trust and they were the trustee and a beneficiary - they could access the trust fund at any time.
But as to the capital, the income that is generated would be attributed to the grandchild with special needs. They have personal tax credits; $11,600 personal and often $8,400 disability tax credit.
So what would happen is the $8,000 of trust income would be attributed to the child beneficiary and would not be taxed. And that $2,600 would then be available every year to help provide for that child; such as contributions to their RDSP or if you also included another child, another grandchild as a beneficiary, which you certainly could. You could use that $2,600 to contribute to their RESP and then receive another $500 grant from the federal government.
This is a better overall plan and as well it's the grandparent trust for the child. And keeps the money separate in a matrimonial situation and it's very tax efficient. So this is something we should discuss.