Using a Trust to Protect an ODSP Recipient's Inheritance in Ontario

If someone you love receives ODSP, a gift in your will can cause an unwelcome surprise. Money left to them outright may count against their benefits, and the effect can be larger than most families expect.

A trust is one way families try to avoid that result. People sometimes call a trust of this kind a Henson-style trust. The name matters less than how the trust is created, who funds it and how ODSP treats it. This article explains the general rules in Ontario so you can ask better questions.

How ODSP treats an inheritance left directly to a recipient

A recipient must report to ODSP any income or other money that they or anyone in their family receives. A windfall such as an inheritance is one of the listed examples. Recipients must also report an inheritance they expect to receive, not only one that has already arrived.

Inherited money is generally treated as income in the month it is received. Any amount still held the following month is treated as an asset.

There is some room before benefits are affected. The recipient and each family member can receive up to $10,000 in total in a 12-month period from gifts, inheritances, trust and life insurance payments and lottery winnings without affecting income support. Amounts above $10,000 count as income in the month received, unless they are used for an approved disability-related item or service.

Separately, the limit on non-exempt assets is $40,000 for a single person and $50,000 for a couple.

How a trust can change the result

Instead of leaving money to the person directly, a will can leave it to a trust for their benefit. Under current ODSP guidance, up to $100,000 of a trust may be exempt as an asset if the trust was funded by an inheritance or life insurance.

The guidance also says that an inherited trust set up in a will is not considered income. Inherited money placed in a trust within six months may also qualify for the exemption.

• A trust set up in the will itself is treated differently from money that has already been paid to the recipient and is then moved into a trust.
• The $100,000 exemption is a cap, so a larger inheritance needs careful planning.
• ODSP guidance changes from time to time, so the current rules should be confirmed before you rely on them.

Property that is not cash

Inherited property or possessions are treated as assets, not income. Some are exempt, such as a home the recipient lives in or a car used as the primary vehicle.

If the estate includes a house or other property that is not the recipient's home, how it is treated will depend on the facts. A lawyer or an ODSP caseworker can help you confirm that before the estate is distributed.

Reporting and the cost of missing it

New assets and asset changes can be reported online through MyBenefits, by phone or by mail. The report should include the nine-digit member ID shown on the monthly statement. Because no specific number of days is given, the safest approach is to report as soon as you learn of the inheritance.

Failing to report creates an overpayment, meaning money received that the person was not eligible to receive. It must be repaid, including after leaving ODSP. While the person is still on ODSP, deductions are taken from monthly income support until the overpayment is repaid.

What to do next

• Find out whether the will already leaves the gift to a trust or to the recipient directly.
• If you are the one leaving the gift or you are an estate trustee, speak to a wills and estates lawyer about how any trust should be set up and funded.
• Make sure the recipient, or the person helping them, reports the expected inheritance to the caseworker.
• Hold off on paying money to the recipient until the ODSP treatment has been confirmed.
• Keep copies of the will, trust documents, bank statements and anything you send to ODSP.

Frequently asked questions