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Trusting Trusts to Protect the Disabled

By Wills & Estates Team (posts)

When a personal injury action is resolved, the plaintiff will receive a lump-sum settlement for their injuries and losses. However, in the case of a person with disabilities (“PWD”), such a settlement may jeopardize their eligibility for provincial PWD benefits, if it means that the plaintiff’s assets will exceed the PWD eligibility thresholds.

If the PWD eligibility would be jeopardized, current B.C. law and policy permit the plaintiff to contribute their settlement funds to a trust – their trust is an exempted asset in the PWD asset calculation.

In setting up a trust for a PWD, consider the following:

What type of trust should be used: discretionary or non-discretionary?

In choosing a type of trust, one must consider both non-discretionary and discretionary trusts.

Under a non-discretionary trust, the trustee must pay the beneficiary according to the terms of the trust. For example, the trust terms may require monthly payments to the beneficiary. A non-discretionary trust will not impact PWD eligibility if the cumulative value of capital contributions over time does not exceed $200,000, or if the Minister of Social Development approves a greater amount. Typically, a non-discretionary trust is an acceptable option if a personal injury settlement is less than $200,000.

Under a discretionary trust, the trustee has discretion to pay trust assets or income to the beneficiary. The beneficiary cannot compel or force the trustee to pay money to him/her. As long as the trust terms do not allow the beneficiary to wind up the trust, the Minister will not consider the beneficiary’s interest in the trust to be an asset. Therefore, it will not affect PWD eligibility status. There is no limit to the value of assets that can be held in a discretionary trust. This is usually a good option for large personal injury settlements.

Ensuring that settlement funds do not pass through the PWD’s hands before being placed in trust.

When arranging a trust for a PWD, the trust funds should not pass through the PWD’s hands, or they may impact eligibility for PWD benefits. The settlement proceeds should be paid directly from the lawyer’s trust account to the trustee without entering the PWD’s personal account.

Conscientious drafting of trust terms and inclusion of necessary powers.

Once established, a trust for a PWD must be reported to the Ministry for review. If the terms are not accepted, the Ministry may allow revisions to the trust and a subsequent review. As such, the trust deed should include a power to vary. A lawyer familiar with trusts and estate planning should always be engaged in drafting the trust terms.

Careful selection of trustee(s) (and, in some cases, a protector).

Another consideration is whom to select as trustee. A trustee may be a person, such as a relative of the PWD, the Public Guardian and Trustee of BC or a corporate trustee. As expertise, costs, and services vary amongst these options, it is important to consider the value of the personal injury settlement, the vulnerability of the PWD, and the skills/expertise needed by the trustee. Co-trustee arrangements are possible, for example a family member acting alongside a corporate trustee.

Plaintiffs should also seek financial advice about starting a Registered Disability Savings Plan. These can be used in conjunction with a trust, and offer additional benefits of government grants and contribution matching programs.

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