Does an Inheritance Held in Trust Affect EIA Benefits in Manitoba?

A parent, grandparent or relative dies and leaves a share of the estate in trust for someone who receives Employment and Income Assistance (EIA). The family worries that the inheritance could cut off the benefits the person relies on. If you are the beneficiary, or the trustee managing the share, the way the trust is written and the timing of payments can make a real difference.

This article explains, in general terms, how Manitoba's EIA Manual treats trusts. It does not replace a review of the actual trust document, which is where most of the answers are found.

This article covers the law of Manitoba.

Why an estate trust raises EIA questions

When a will leaves a share in trust, the trustee named in the will holds the money and decides, within the terms of the document, how and when it goes to the beneficiary. EIA looks at what resources and income a person has available to them. So the question is whether the beneficiary can actually reach the trust money, or whether it stays out of reach unless the trustee chooses to pay it.

The EIA Manual has a section on trusts (6.8) that deals with exactly this. Its treatment turns on whether the trust is discretionary or not.

Discretionary trusts

Under the EIA Manual, a beneficiary's interest in a discretionary trust is not a financial resource unless funds are actually distributed, because the beneficiary has no enforceable claim to the property.

Whether a trust is discretionary depends on the trustee's discretion, and that requires a review of the trust document. A label such as "discretionary" in a will or in conversation is not enough on its own. What counts is how much real choice the document gives the trustee over payments.

• The beneficiary cannot force the trustee to pay, which is why the interest is not counted as a resource.
• Once money is actually paid out, it is no longer simply an unreached interest, and the payment rules described below apply.
• Wording that gives the beneficiary a right to demand payment can change how the trust is classified.

Non-discretionary trusts

A non-discretionary trust is different. For these trusts, adult beneficiaries are expected to pursue all reasonable steps to access the funds, and the funds count as a non-exempt resource unless they are within the liquid asset exemption.

The exact exemption amounts are set by the program and can change, so check the current figures with EIA or a lawyer rather than relying on an old number you heard from a friend or relative.

Payments out of the trust and the trustee's role

Payments from a trust are generally treated as unearned income unless they fall within a s. 8 exclusion. It helps to understand this before any money leaves the trust. How a particular lump sum or series of payments affects a person's benefits depends on the facts, so it is worth confirming with EIA or a lawyer before any payment is made.

Trustees must also give the program the information it needs to decide eligibility. Being open with EIA from the start is generally easier than correcting a problem later.

• Read the trust terms before making any payment, so you know what discretion you actually have.
• Consider whether a payment goes directly to the beneficiary or to a third party for something they need. How EIA treats each approach depends on the facts and should be confirmed.
• Keep a record of every payment, its date and its purpose.

What to do next

• Get a copy of the will or trust document and read how much discretion the trustee has.
• If you are the beneficiary, tell your EIA worker about the inheritance and ask what they need to see.
• If you are the trustee, gather the information EIA is likely to ask for, such as the trust terms, balances and payment history.
• Hold off on any distribution until you understand how it may be treated.
• Speak with a lawyer about the wording of the trust, and whether anything can be done to protect the beneficiary's benefits.

Every trust is different, and a small difference in wording can change the result. A lawyer can review the document and explain how the EIA rules are likely to apply to your situation.

Frequently asked questions