Receiving an Inheritance While on ODSP in Ontario: Will You Lose Benefits?

If you receive Ontario Disability Support Program (ODSP) benefits and have been named in someone's will or on a life insurance policy, the news can bring worry along with grief. Many people fear that an inheritance will end their benefits, or that they must spend it quickly to stay eligible.

The rules are more manageable than that, but timing and paperwork matter. This article explains what you need to report, how the money is counted, how a trust can help protect it, and how the tax side works. Policy figures change and caseworkers apply them case by case, so confirm your own situation before you act.

You must report an inheritance, even one you only expect

ODSP recipients must report any inheritance they receive or expect to receive. How this applies to money coming from a life insurance policy depends on the facts, so it is worth confirming with your caseworker or a lawyer. The duty is not limited to money already in your bank account.

Reporting early gives you time to plan. If you wait until the money arrives, you may have less room to set up protections. A beneficiary who is waiting on an estate can ask the estate trustee roughly when a payment might be made, and then tell their caseworker what they know.

How ODSP counts the money

An inheritance is generally treated as income in the month you receive it, and any amount left the following month is generally treated as an asset. This is why a large lump sum can cause a problem: it can affect your income support for the month it arrives, and what remains then counts against your asset limit.

The asset limits are set out in the table below.

If the amount you inherit is small and would leave you under these limits, you may not need a trust. If it would push you over, it is worth looking at your options before the money is paid out.

Protecting the money with a trust

If an ODSP recipient puts an inheritance or life insurance proceeds in a trust, up to $100,000 is exempt as an asset. That $100,000 is a combined limit. It covers the trust capital plus the cash surrender value of any life insurance policies the recipient owns. So if you already own a policy with cash value, that value uses up part of the $100,000.

Recipients may be given up to six months to set up the trust. That is not a reason to delay. Tell your caseworker you are planning a trust, and ask a lawyer to prepare it so that its terms fit the ODSP rules.

• Report the inheritance as soon as you know about it.
• Ask your caseworker how much time you will be given to set up the trust.
• Work out whether you own any life insurance with a cash surrender value, since it counts toward the combined limit.
• If payments will come out of the trust, remember that an annual report of all trust transactions must be filed to keep the $10,000 income exemption.

Payments out of the trust, and a note on Henson trusts

Payments from a trust to an ODSP recipient, for any purpose, are exempt as income up to $10,000 in a 12-month period, as long as an annual report of all trust transactions is filed. Other payments count as income in the month received. This means the trustee should plan how much to pay out and when, and keep clear records.

A trust where the trustee has absolute and sole discretion over payments is not an asset for ODSP, so its capital can exceed $100,000. This is often called a Henson trust. However, a recipient cannot put their own inheritance into such a trust to avoid the limit. Whether a trust of this kind suits your situation depends on the facts, so it is worth confirming with a lawyer.

Tax, and what to do next

For CRA purposes, most gifts and inheritances, and most life insurance payouts after someone's death, are among the amounts you do not report as income. That is a separate question from how ODSP counts the money. Something can be tax-free and still affect your ODSP.

The figures here come from policy directives that can change, and caseworkers apply them case by case. Treat the numbers as a starting point rather than a promise.

• Find out what you are receiving, from which estate or policy, and roughly when.
• Tell ODSP about the inheritance, since you must report any inheritance you receive or expect to receive.
• Check your household asset limit.
• Do not spend or move the money in a hurry before you understand the effect on your benefits.
• Speak with a lawyer about a trust before the payment is made, so there is time to set it up.

Frequently asked questions