Planning Ahead to Support Disabled Beneficiaries13-Oct-16
By Kate Faught
Parents and guardians of minors or adults with disabilities have extra considerations when developing their estate plans. It is important that additional care is taken in order to ensure that government benefits and inheritance from the estate are both maximized for the benefit of the disabled person. There are many strategies and tools that estate planners can use to assist parents and guardians of people with disabilities.
It is important to note that the Alberta Wills and Succession Act states that every parent has a duty to adequately provide for any children of theirs who are unable to earn a livelihood due to a mental or physical disability. This means that those parents must leave sufficient inheritance to their disabled children, whether or not the parent financially supports that child during the parent’s lifetime. If the parent does not adequately provide for the disabled child in their will, then that child, whether it is a minor or adult at the time of the parent’s death, can make a claim for a larger share of the estate than what the parent left them in the will. These claims result in costly and often lengthy battles in the court system, which usually means that legal and expert fees chip away significantly at the amount of money that is left for any of the beneficiaries.
It is not easy to say what will constitute “adequately providing for” a disabled child. The answer to that question will be different in every case and depends on a wide variety of factors including:
- How much does the child require to meet their current and future needs?
- What is the overall value of the estate?
- How many claimants are there?
- What is the lifestyle the disabled person enjoys?
- How much support was provided during the parent’s lifetime?
The uncertainty about whether or not the parent has adequately provided for these specific beneficiaries illustrates the value in legal and financial planning advice. Your lawyer will be able to assist you in considering how much of your estate needs to be left for any disabled beneficiaries.
Another question to consider when your estate plan includes a disabled child or beneficiary is how you will structure any gifts to those beneficiaries in order to maximize their inheritance while also preserving any government benefits they receive. For example, if the child receives AISH (Assured Income for the Severely Handicapped), care must be taken to ensure that they do not hold assets exceeding $100,000. If the beneficiary owns more than this limited amount, they will lose their entitlement to all or part of their AISH supports.
Exempt from this limit are assets including the beneficiary’s principal residence, up to two vehicles, household goods and a prepaid funeral. Often the first use of inheritance is to purchase a residence for the disabled person, since that value is not included in the amount of assets the person is able to hold while maintaining their AISH eligibility. There are numerous other tools and exemptions that can be used to ensure that the disabled person can receive both the inheritance and the government benefits, including trusts and Registered Disability Savings Plans, but this must be done carefully and with legal advice in order to avoid disappointment and confusion after the parent has died.
Ensuring that a disabled child will have sufficient funds available for their support is one of the most important tasks that a parent or guardian must undertake in their estate plan. Financial planning and legal advice will be critical for parents in these circumstances.