Individuals in BC who want to make provision for individuals who are or may be persons with disabilities (“PWD”) need to consult with an estate planning lawyer to determine if the gift should be held in a trust. This trust is set up in your will. Setting up a trust for persons with disabilities can have significant benefits to the benefiting individual. A trust in your will helps ensure the benefiting individual will remain entitled to his or her disability benefits.
How to Set up Disability Trust in BC
When setting up a disability trust in your will, the specialized knowledge of an estate planning lawyer familiar with how to draft these provisions correctly is needed. A knowledgeable lawyer’s experience is valuable and they can help guide you in how the trust needs to be prepared to meet your unique objectives.
Once you have decided on the type of trust and its terms, the lawyer will draft your will to ensure the trust contained in it will work as it was intended to when you die.
Before meeting with your lawyer, here are a few terms of the trust you should consider:
Choosing A Trustee
Who will be the trustee of the trust? Will it be the executor named in your will or another individual? In your will, a disability trust will be fully discretionary, which means the trustee of the trust has total discretion to determine how the funds held in trust are used.
It is important you choose someone you trust for this role. Moreover, you want to choose someone the beneficiary of the trust knows and trusts. Because the trust will exist until the funds are used up or the beneficiary dies, the trustee and the beneficiary will be in relationship with one another for years, perhaps decades.
If you do not have a trusted individual in your network, there are professional trust companies and non-profit organizations who can take on the role of the trustee. Your lawyer can explore this option with you and help make introductions.
As noted above, the trustee role can go on for years, even decades. Under our legislation, if the will does not specifically set out how much compensation a trustee can claim, they cannot claim compensation without the consent of the beneficiary.
Depending on the nature of the beneficiary’s disability, obtaining consent may or may not be possible. Your lawyer will help you understand what reasonable compensation may be and ensure it is properly included in your will. It is a good idea to talk with your trustee too and ask if they expect to be compensated, keeping in mind that compensation is treated as taxable income.
Reimbursement of expenses is different than compensation. At law, a trustee is entitled to reimbursement for expenses reasonably incurred in the administration of their duties.
A properly drafted trust will contain provisions that set out what happens to the trust if the primary beneficiary (being the individual with the PWD designation) dies. You need to decide how the trust fund, in any, will be distributed after the primary beneficiary’s death. These beneficiaries are called contingent beneficiaries.
When selecting a trustee, it’s crucial to consider potential conflicts of interest that may arise. For instance, appointing a trustee who also happens to be a contingent beneficiary might lead to complications.
They may be subconsciously swayed to preserve the funds instead of utilizing them for their intended purpose, knowing that any remaining balance could ultimately end up in their own pocket upon your demise. So, think carefully and opt for a trustee who will prioritize the best interests of the individual with the PWD designation above all else.
Other Estate Planning Tools for Disabled Individuals
A disability trust in your will is a very important piece of the estate plan for a will-maker who is providing for one or more beneficiaries with the PWD. But there are also steps you can take now to ensure a person with a disability has resources available to them in the future. In consultation with your financial advisor, you can take steps to open up a registered disability savings plan (RDSP).
How Does a Registered Disability Savings Plan Work?
An RDSP is a tax-deferred savings plan that allows you to save money for a person with a disability. Contributions to an RDSP are not tax-deductible, but the funds in the account grow tax-free. When funds are withdrawn from the account, they are subject to tax, but the tax burden is generally lower because the beneficiary is likely to be in a lower tax bracket. Disability benefits end at 65 so an RDSP can be an important source of income for a PWD in their later years.
Disability Trust Lawyers BC
Setting up a disability trust is not a complex process – you just need the knowledge and experience of an estate planning lawyer who knows how to do it. At BKS Law, we have in-depth experience helping families in British Columbia with estate planning.
We have helped hundreds of families put estate plans in place that allow them to provide for individuals with a PWD designation without jeopardizing their disability benefits. Our compassionate team will guide you through the process, step by step, working to ensure that your testamentary objectives are achieved.