- For BC disability assistance, a discretionary trust is not treated as an asset if the person has no way of collapsing it and gaining control of the assets.
- A non-discretionary trust counts as an asset and is exempt only where the amount contributed does not exceed $200,000.
- Assets held in a Registered Disability Savings Plan (RDSP) are exempt for BC disability assistance.
Many families worry that leaving money to a relative with a disability will cost that person their provincial benefits. The way the money is held can make a big difference.
This article explains how British Columbia's disability assistance program generally treats trusts and RDSPs, and where tax and trustee questions come in. The rules vary by situation and can change, so use this to prepare questions for a lawyer and an accountant.
This article covers the law of British Columbia.
Why the form of the gift matters
If you leave money outright to someone who receives disability assistance, it may be counted as an asset in their own name. A trust holds the property separately, with a trustee managing it for the beneficiary. Whether the ministry treats the trust as the person's asset depends on how the trust is written and run.
Discretionary and non-discretionary trusts
| Type of trust | How BC disability assistance treats it |
|---|---|
| Discretionary trust | Not treated as an asset if the client has no way of collapsing it and gaining control of the assets |
| Non-discretionary trust | Counts as an asset; exempt only where the amount contributed to it does not exceed $200,000 |
In a discretionary trust, the trustee decides if, when and how much to pay out. The point is that the beneficiary cannot demand the money or end the trust. The wording of the document is therefore very important.
The ministry's published guidance on these rules appears in more than one place and the details, including the $200,000 figure, can change. Confirm the current numbers before relying on them.
Registered Disability Savings Plans
Assets held in an RDSP are exempt for BC disability assistance, and RDSP payments are exempt as income and assets. How an RDSP fits together with a trust depends on your situation, so it is worth confirming with a lawyer or accountant.
Money received for transfer into a trust or RDSP is temporarily exempt for up to three months, with the first month being the month received. The ministry may extend month by month if the delay is beyond the client's control and reasonable efforts are shown.
Trustee duties and tax points
Whoever you name as trustee takes on real responsibility. A trustee investing trust property must use the care, skill, diligence and judgment of a prudent investor. A trustee may receive a fair and reasonable allowance not exceeding 5% of the gross aggregate value of the estate unless the trust instrument sets the allowance. Choose someone you trust who is comfortable dealing with the ministry.
A trustee may delegate investment authority to an agent to the degree a prudent investor could under ordinary business practice, but must set the investment objectives and act prudently in choosing the agent, setting terms, communicating objectives and monitoring performance. Delegation is not allowed where the trust requires the trustee to act personally.
Executors, administrators and testamentary trustees must generally obtain a court order passing their first accounts within 2 years of the grant or appointment. That requirement does not apply if all beneficiaries approve the accounts in writing or the court directs otherwise, and on notice from a beneficiary a trustee must pass accounts annually. If a trustee breaches the trust, the court may relieve the trustee from liability if the trustee acted honestly and reasonably and ought fairly to be excused.
A trust created on and as a result of a person's death is generally a testamentary trust. An estate qualifies as a graduated rate estate for up to 36 months after death if it designates itself on its first T3 return. A T3 return is due no later than 90 days after the trust's tax year-end. Other tax categories may also come up when a trust is set up for a person with a disability. Whether a particular trust qualifies, and what that means for tax, is a question for an accountant or lawyer who can review the actual document.
What to do next
- Find out which benefits the person receives now and whether they are likely to change.
- Ask a lawyer whether a discretionary trust suits the situation, and have the wording reviewed against current ministry guidance.
- Consider whether an RDSP is open or could be opened for the person.
- Choose a trustee, and a backup, who understands the benefits rules.
- Ask an accountant about T3 filing and the tax treatment of the trust.
- Tell the trustee to check with the ministry before payments are made, so payments do not surprise the beneficiary.
Frequently asked questions
Will a trust always protect disability benefits?
No. A discretionary trust is not treated as an asset if the client has no way of collapsing it and gaining control of the assets. A non-discretionary trust counts as an asset unless the amount contributed does not exceed $200,000.
Does an RDSP affect disability assistance?
Assets in an RDSP are exempt, and RDSP payments are exempt as income and assets. Details of how the plan is set up and funded are worth confirming with an adviser.
What if money arrives before the trust or RDSP is ready?
Assets received for transfer into a trust or RDSP are temporarily exempt for up to three months. The ministry may extend month by month if the delay is beyond the client's control and reasonable efforts are shown.
Who should be the trustee?
Pick someone responsible who will invest with a prudent investor's care and skill and understands how payments could affect benefits. Naming a backup is wise, and a lawyer can help you weigh the options.
Sources
- Trustee Act, BC Laws — bclaws.gov.bc.ca
- CRA – Types of trusts — canada.ca
- CRA – When to file a trust's T3 return — canada.ca
- gov.bc.ca – BCEA Policy and Procedure Manual: Trusts — www2.gov.bc.ca
- gov.bc.ca – Disability Assistance and Trusts booklet — www2.gov.bc.ca
- gov.bc.ca – BCEA Policy: Assets and Exemptions — www2.gov.bc.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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