A Beneficiary on ODSP Is Inheriting: What the Executor Should Know

If a beneficiary of the estate receives ODSP, a direct payout of their share could cause problems with their benefits. As executor, you may be the person who decides how and when the money is paid, so it helps to understand the basics.

ODSP treats trusts through policy directives, and each situation turns on the will and the beneficiary's circumstances. This article outlines the main rules and why a lawyer should be involved early.

Why an inheritance matters for ODSP

ODSP looks at both income and assets. A cash inheritance placed in trust later is income in the month received unless otherwise exempt. How the money is held afterward can also matter, and ODSP sets overall asset limits for recipients; confirm the current amounts with ODSP or a lawyer before relying on any figure.

The rules are in policy directives rather than a single simple formula. For that reason, even a well-meaning decision, such as paying the share straight into the beneficiary's bank account, can have effects that are hard to undo.

The main ways to protect the inheritance

ODSP policy describes more than one trust arrangement, shown in the table below. Which one fits depends on the will, the size of the inheritance and the beneficiary's needs.

Up to $100,000 of an inheritance placed in trust under a will is exempt as income in the month received. This is one reason the terms of the will matter. If the will itself creates a trust, it must be reviewed to see whether the funds are available for maintenance.

There is an important limit. A recipient cannot place an inheritance they are entitled to into an absolute discretionary trust to avoid asset treatment. Setting up a trust after the fact is not a workaround for every case, which is why legal advice before distribution is worth it.

Timing and how trust payments are treated

Trusts should be set up as soon as possible, and recipients may get up to six months. Because the executor controls when the share is paid out, delays and mistakes at this stage can matter.

Payments from a trust are exempt as income up to $10,000 in any 12-month period. Payments for disability-related items or services, education, a principal residence, an exempt vehicle, or first and last month's rent are also exempt. These exemptions depend on an annual report of all trust income and expenses, so whoever acts as trustee needs to keep careful records.

What the executor should do and avoid

• Find out early whether any beneficiary receives ODSP, and ask them to share any ODSP letters or case information.
• Avoid paying the share directly to the beneficiary until a lawyer has reviewed the options.
• Check whether the will already sets up a trust and whether it is drafted so the funds are available for maintenance.
• Keep records of every payment and the reasons for it.
• Do not distribute until taxes are dealt with, since distributing before a CRA clearance certificate makes the representative personally liable for unpaid tax up to the value distributed.

An executor's duties include collecting assets and distributing the rest, and professional costs such as legal work are paid from the estate as expenses. Whether the cost of setting up a trust is an estate expense may depend on the will, so it is worth asking a lawyer.

What to do next

• Confirm which beneficiaries receive ODSP and the size of their expected share.
• Read the will for any trust terms.
• Speak with a lawyer about a trust before any payment is made.
• Ask the beneficiary to contact their ODSP caseworker or a legal clinic about reporting the inheritance.
• Set up a system to keep an annual record of trust income and expenses.

Frequently asked questions