Does an Inheritance Reduce My ODSP Monthly Payments?

Getting an inheritance while you receive ODSP can feel like good news and a threat at the same time. Many people worry that the money will cut off their benefits, or that they will be asked to repay months of payments.

The honest answer is that it depends on how the money arrives, how much it is, what you do with it and how quickly you report it. This article walks through the main ODSP rules so you know what questions to ask before you spend or move anything.

Income, asset, or both?

ODSP looks at money in two ways. Money you receive can be counted as income in the month you get it, and what you still hold afterward can be tested against the asset limits, depending on its form and timing. One inheritance can be tested under both sets of rules, one after the other.

Each member of a benefit unit may receive up to $10,000 in gifts or voluntary payments in a 12-month period from any source. Payments from trusts, life insurance and windfalls count toward that same $10,000. Gifts used for disability-related items or services, a principal residence, an exempt vehicle, or first and last month's rent are exempt beyond that amount.

Whether a particular inheritance fits those categories depends on the facts, which is why it is worth getting advice before the money is paid out.

The limits that matter

Some things do not count toward the asset limit at all. These include your principal residence, one motor vehicle regardless of value, all RDSP funds, RESPs, pre-paid funerals and tools of the trade. If you sell your home, the proceeds are exempt if used to buy another principal residence within 12 months.

Cash in hand versus money in a trust

The form of the inheritance matters a great deal. If a will creates a trust for you, up to $100,000 from an inheritance or life insurance payout is exempt as income in the month received. Interest or dividends in the trust can be reinvested as long as the capital stays at or below $100,000.

Cash that you receive first and then place in a trust is different. It is income in the month received unless otherwise exempt, and it becomes an exempt asset afterward if the trust is set up within six months.

Payments out of a trust to cover disability-related items are exempt without limit. Other trust payments count toward the $10,000 gift figure.

• Money paid straight to you is usually the most exposed to the income and asset tests.
• A trust set up in the will, or promptly afterward, can change the result.
• Timing matters: waiting too long to arrange a trust or to convert proceeds can cause problems.

Selling inherited property

If you inherit a house or other property and sell it, the proceeds need attention. Selling an asset and not converting the proceeds within about six months can make the proceeds count as income and assets, which may result in cancellations and overpayments.

Whether the property itself is exempt, for example as a principal residence, depends on how you use it. A lawyer can confirm how the rules apply to your situation.

Reporting and what to do next

ODSP recipients must tell ODSP about any income or other money that they or their family receive, and must report new assets or changes in an asset's value. You can report through MyBenefits, by phone or by mail.

If you report an inheritance late and have partly spent it, ODSP reviews the spending. Amounts not covered by an exemption are charged as retroactive income for the month received. A repayable overpayment is money you received that you were not eligible to receive.

• Report the inheritance to ODSP as soon as you learn about it, and keep a record of when and how you did.
• Ask the estate trustee whether the will creates a trust for you.
• Do not spend, gift or move the money until you know how it will be treated.
• Keep receipts for disability-related purchases.
• Speak to a lawyer or a community legal clinic about setting up a trust before the money is paid out.

Frequently asked questions