It is not necessarily all doom and gloom for the financially comfortable individual who suddenly find themselves otherwise entitled to government income assistance, welfare.

NOT DOUBLE-DIPPING

The reigning theory for the treatment of assets belonging to a person who otherwise claims social assistance, in the form of welfare even for disability benefits, be they physical or mental disorders, is that their own assets must be depleted before they can receive government benefits.

This make sense outside of the social welfare state as a person should not show up cup in hand if they have cash in their back pocket. To do so successfully would allow individual to double-dip; or double recovery.

But over the years, governments have evolved particularly to address the need to encourage family members support each other, and also to avoid the depletion of assets by persons who suffer from severe physical or cognitive disabilities.

wheelchair symbolThe classic example is the victim of a motor vehicle accident who finds himself or herself permanently disabled, either physically or mentally. By the strict rule of law, that person would receive no government benefits until they have depleted their assets, including hundreds of thousands of dollars in settlement monies. By the strict application of law, those persons would not be motivated to manage their investment since the quicker they spend it all, the faster they can get government assistance.

Another not uncommon feature of disabled people is that if they are fortunate enough to have assets, those assets are invaluable in meeting the extra costs of their care.

Thus, governments have explored ways to protect the disabled person's assets in spite of the payment of government assistance, in the form of disability or welfare benefits. This has not always been a popular policy decision particularly in light of government deficits.

Nor has it always been a willing shift: much of the credit for this legal development goes to litigants and lawyers - not to government committees - who have pushed for the exemption of trust assets from the asset hounds at the government welfare office.

However, the momentum now appears to be a consistent policy shift, at least in North America.

Many, but not all jurisdictions now have a mechanism which will allow a disabled person to protect and only gradually spend their assets and at the same time, receive government benefits.

The basic instrument is a living trust but the device has been given other names because of the special purpose of it. For example, the Henson Trust [for more on the Henson Trust, especially the fascinating history, visit the webpage of SNPG (the Special Needs Planning Group].

ONE JURISDICTION'S PATH TO ACCOMMODATION

One such jurisdiction is the Canadian Province of British Columbia. Under provincial law, qualified disabled persons are entitled to receive monthly income benefits and certain other benefits such as dental treatments, bus passes, etc. This does not cover those on simple welfare but only those who have a mental health disorder or a severe physical impairment.

In order to qualify a person's assets and monthly income must not exceed certain limits set by regulation. The asset limit depends on the person's age and situation, but is usually $3,000. Three thousand dollars worth of assets does not by any reckoning a wealthy person make.

A person is entitled to certain "exempt" assets such as a home, car, and clothing. However if a person has "non-exempt" assets exceeding $3,000.00 he or she will not be entitled to receive disability benefits.

wheelchair BCMoney held in trust for the benefit of a disabled person may be considered a "non-asset", an "exempt asset" or an included asset, depending on various factors.

There are two types of trusts which can be set up (see Legal Definition of Discretionary Trust). The first type of trust is a fully discretionary trust. A fully discretionary trust gives to the trustee all the power to make decisions about how money is spent. The disabled person, under a fully discretionary trust, has no right or entitlement to call for payments from the trust. In such a situation the disabled person cannot be said to have an "asset", since the person has no right to any money in the trust. Therefore, fully discretionary trusts can be used as estate planning tools for families wishing to care for their disabled children or family members. The trust could be set up, yet the disabled person will still be entitled to receive the monthly income benefits under the Act. Monies from the trust may then be used to buy items which can be gifted to the disabled person.

The second type of trust which can be set up to care for a disabled person is a non-discretionary trust. Under a non-discretionary trust, the trustee has less freedom, or no freedom, to use discretion to make decisions about how the money will be spent. For example, under the governing trust document the trustee may be required to pay a monthly amount to the beneficiary.

In British Columbia, at least circa 2011, as the law in this regards seems to change frequently, a non-discretionary trust is considered to be an asset of the beneficiary. Still, at least this is the mechanism used by the legislators in this jurisdiction, such an asset is declared to be exempt provided it does not exceed a specified value, now set at $100,000. By "exempt", the statute means that the asset is not taken into consideration when assessing eligibility under government assistance programs.

It may be useful to set up non-discretionary trusts in cases where a disabled person has received a large amount of money in cash. If gifted outright, it might disentitle the person from receiving disability benefits. However if a trust is set up properly then it may be possible for the person both to have the benefit of the money in trust, and continue to receive government benefits. Payments from such trusts may, however, be considered income and may, if the person's monthly income entitlement is exceeded, be set-off against benefits payable for the month in which the gift is received. Your monthly check would be reduced by the amount of the payment.

In this regard, the government is careful: this is true whether the payment is made directly to the disabled person, or to a third party for the benefit of the disabled person (for example, to purchase an airline ticket).

Starting in 1996, government regulations have permitted certain payments from a trust to be made without affecting a beneficiary's entitlement to the monthly benefits, provided the payments were made for certain specified purposes including monies paid for disability-related costs such as:

  • Devices or medical aids that improve health or well-being;
  • Care-giver, home-cleaner or other such disability-related services;
  • Education or training (eg. tuition);
  • Necessary maintenance on the beneficiary's home or renovations or changes to the home to accommodate the limitations caused by the disability.

There is no limit on the amount that can be paid for such costs.

As well, under the new regulations monies paid for "any other item or service necessary to promote the independence of the person with disabilities" may also be exempt.

Of course, it will always be a question of interpretation as to whether a cost or payment is exempt or not. Some expenses are obviously disability-related, others not.

The rules are quite complicated, and it is necessary in each case to review the circumstances of the individual and see what would be best for him or her, and for the family.

CONCLUSIONS

If there has ever been an area where legal advice is so invaluable, it is in the establishment of the trust for the benefit of a disabled person. A poorly drafted trust agreement could significantly compromise an individual's entitlement to permanent government assistance and result in the depletion of an asset that could of been protected.

If you are an individual, or a friend or family member of an individual who is in receipt of government benefits, or potentially qualified to receive government benefits, but who is wary of the receipt or depletion of a large asset, there may be a trust remedy available in your jurisdiction.

REFERENCES: