Henson Trusts, The Ontario Disability Support Program (ODSP) Benefits and Tax Credits

Sometime ago I began a very fruitful dialogue with Kenneth C. Pope, LLB, a lawyer in Ottawa, Ontario. He is one of the most experienced legal practitioners in Canada providing services to families with a family member with a disability and has focused his professional career to help them put in place Henson Trusts.

What I would like to share with you in this month’s article is a recent talk I had with Kenneth Pope where we discussed Henson Trusts, ODSP and other tax credits that families and disabled individuals can benefit from but are often unaware.

The Interview:

Merrick: “What is ODSP?”

Pope: “ODSP stands for The Ontario Disability Support Program. The Ontario Misistry for Community and Social Services describes it as program that is designed to meet the unique needs of people with disabilities who are in financial need, or who want and are able to work and need support. Other procinces have similar disabled support programs”

Merrick: What happens if a family member with special needs is receiving Ontario disability support benefits and then he/she is left an inheritance? Will that inheritance be considered an asset and disqualify them from benefits?”

Pope: Yes, The family member if left an inheritance will be not be eligible for benefits such as the ODSP unless special arrangements are made in the parents’ Will.

Merrick: “Are there any solutions for parents and guardians of persons with special needs that will allow them to leave an inheritance and not disqualify the disabled individual from receiving disability benefits from the government?”

Pope: “Yes, the only real solution to this inequity is a HENSON TRUST, created by the parents’ Will. Only available since 1989, when the case after, which it is named was upheld by the Ontario Court of Appeal, it places estate assets in the care and control of a Trustee to be administered for the benefit of a beneficiary. Inheritances placed in a properly prepared Absolute Discretionary Trust are not the asset of the child and will not affect provincial benefits.

Merrick: “What are the motivations that cause parents and guardians to setting up a Henson Trust?”

Pope: “Many families have members who require assistance in handling their daily affairs, regardless of their other abilities. Special Beneficiaries often benefit from guidance in handling large sums of money or significant assets, temporarily or on an on-going basis. Some beneficiaries may be unable or unwilling to seek guidance, and may at some point be left without care unless special provisions are put into place.

To solve these problems a Henson Trust must be created during a parent’s or guardian’s lifetime (inter vivos) or according to the terms of parent’s or guardian’s Will (testamentary). These Trusts are invaluable in planning for a child’s care when a parent or guardian are no longer there.

Merrick: Why do some people receiving Ontario provincial disability benefits receive $730 each month while others receive $959?

Pope: “The $730 amount is the ‘room and board’ allowance. If a child lives with the parent they will automatically be slotted into this amount. The $959 amount is composed of $427 for shelter/rent and $532 for supplementary benefits for everything else.”

Merrick: “Do you recommend strategies that will allow individuals to receive the full amount?”

Pope: “A simple method to receive full benefits is by setting up a lease arrangement with the parents and having the parents charge at least the shelter allowance amount. The benefits should then be increased to the proper amount. These shelter payments by a blood relative are not to be included as “rental” income. Rental losses are not allowed if your rental operation is a cost-sharing arrangement rather than an operation to make a profit.

You can deduct your expenses only if you incur them to earn income. In certain cases, you may ask your son or daughter, or another relative living with you, to pay a small amount for the upkeep of your house or to cover the cost of groceries. You do not report this amount in your income, and you cannot claim rental expenses. This is, in fact, a cost-sharing arrangement, so you cannot claim a rental loss.

The child cannot then make use of the “tenant property tax” credit.

If the child is simply unable to shop or cook, even with supports, then the increased amount may be unavailable on the basis that the food and lodging is provided by the parents. This turns on the facts of each situation.”

Merrick: “Many people have heard about the ‘caregiver credit’ used by some families to reduce taxes. When does this apply?”

Pope: “If a child is over 18 years of age, on ODSP and resides full time or substantially all of the time with the parent or other family member, then the family member qualifies as a care-giver of that child. They can then claim the ‘care-giver tax credit’ and pay approximately $500 less in taxes than they would have.

This credit applies in each ongoing year in which these factors exist. The credit came into effect in 1998, and can be back filed to that year if applicable. This would return approximately $4,500 in taxes for a back filing from 2006.

This tax credit applies in the circumstances of any adult family member, not just children, for example an aged parent who survives on a small pension and who has been released from hospital after an operation.

Merrick: What is the ‘disability tax credit’? I know some parents save on taxes by using this tax credit and others have never heard of it.

Pope: This tax credit is available whenever a child of any age is markedly restricted in the activities of daily living on an on-going basis.

The restrictions can be cognitive, developmental, physical or mental, or a combination of disabilities. This tax credit must be applied for and approved, by filing a T-2201 form with Canada Revenue Agency.

Once approved, the credit is transferred from the child who qualifies to a parent or other supporting person. The tax credit is only useful to someone who pays taxes, and in many cases the person with the disability has no taxable income.

The credit was recently increased, and now returns $1,500 each year to a taxpayer who makes use of it. It can presently be back filed to 1996, back ten years on a rolling annual basis.

Note: In years prior to 2001 the tax credit only returns $1,000 per year, as that was the previous allowance. Back filing for the full period, if applicable, in 2006 would return approximately $14,000 to the taxpayer.”

The Bottom Line

Henson Trusts, ODSP, Benefits and Tax Credits are special arrangements necessary to properly ensure that loved ones of clients are given the extra care they deserve, and that inheritances will not be wasted. One can just imagine the potential liability someone who puts himself or herself out in the public domain as a client’s advisor could be who ignores the options available for clients who are parents or guardians of children with special needs.

If you believe a client would benefit from adopting any of the strategies mentioned above it is important to seek specialized legal counsel and the proper financial planning professionals will assist in setting up and managing the right plan for your clients who care for children with disabilities.

Written by Peter Merrick

Peter Merrick, FMA, CFP, FCSI, Instructor at George Brown and Seneca Colleges, President of Merrick Wealth Management, a boutique financial planning, employee and executive benefit consulting firm.

16 Responses to Henson Trusts, The Ontario Disability Support Program (ODSP) Benefits and Tax Credits

  1. I receive C.P.P. disability benefits, as well as O.D.S.P. benefits. The amount I receive from C.P.P. benefits, is deducted off my O.D.S.P., which I don.t have a problem with. The problem I have, is the fact, other people I know, who are receiving O.D.S.P. benefits receive a start-up allowance every two years. Now with this being said, I tried to get a start-up allowance (Its been a little over two years) and was denied this benefit. I know for a fact, there is a tenant, residing in the same apt. building as myself, moving to another apt., in the same building, who applied for a start-up allowance and received it. How is this fair to other people on O.D.S.P. benefits? I myself, took a reduction in rent, to be the Superintendent of the apt. building. When I asked my worker about a start-up for clothing, I was out right denied. Can you please email me what page and subsection, under the Ontario Disability Support Plan where it states the requirements for the start-up allowance. Than-You

  2. Hello,

    I receive ODSP. I inherited about $300,000 from a
    will. Is it possible to deposit about $200,000 into
    a Henson trust, and the other $100,000 into some type of sheltered trust ? I’m asking this because if it’s all deposited into a Henson trust, I’d only
    be able to withdraw about $7000 a year. Whereas with the money that’s in the sheltered trust I
    wouldn’t have any restrictions as to how much I could withdraw.

  3. Dear Rob I’m glad you found my website and submitted your questions directly, but I thought it would be generally useful to reply here as well.

    There are various ways to shelter or exempt $300,000, but the choices depend on your particular circumstances. You can’t now set up a Henson trust yourself.

    We use inheritance trusts, exempt asset investments, RSDPs, exempt property purchases, pain and suffering amounts and other methods to exempt the money.

    Now that I’m back from holidays, and when you fill in the Evaluation Form on my website, I’ll be glad to reply with more detail about your own situation.

    Best, Ken Pope

  4. The will actually states that the money I’ve inherited is to be deposited in a Henson trust which
    has already been setup for me. My sister who is the
    trustee for me wants to buy GIC’s for me with the
    money that sits in the Henson fund. The ODSP rules
    that I’m under state that GIC’s are not an exempt
    asset. What should I do ?

  5. i am buying a house that the current tenant has been willed the right to stay in the house as long as she wants as long as she pays rent from her odsp and also pays for utlilties
    the current owners (dad died) want to transfer to me opon sale the tenancy agreement of the will
    is there a way to dislove this as the 709 rent she pays should be 1200+ how can evict her
    thks terry

  6. Presently receiving cpp disability. Can i rent out my basement apartment for extra income or will cpp disability consider this income… Would my cpp disability be reduced or eliminated

    Thanks so much
    Toby

  7. Hi, I like gain some information. Please send me a reply ASAP.
    My late wife was on ODSP. We were living in a Peel Rent Supplement apartment. Do survival spouse has any right to live in the same apartment? Surviving person is also having jobless and 57 years old and getting OW (Welfare) from peel Region.
    Please reply me in detail…..Is Henson can help me in this situation ?
    Thank you

    Malik Muhammad

  8. Mr.Pope-this posting is a Godsend for me….I am a sr.76 yrs of age…have an Autistic son who is now 52 years of age! Very difficult to employ is basically self-sufficient but difficult to find employment because he is so precise and slow. Befor my death…i want to have everything in order for him, currently unemployed and receives nothing at this point. Please help me, i need legal advice in the Toronto area to get your article mentioned benefits in place for my son! He is an awesome man and has spent his freetime volunteering for the NCIB…sailing, skiing, walking, biking etc.

    A loving father who is extremely concerned and wants to everything possible for my son!

  9. im on disibilty and on odsp im in a nursing home and my mom just past away im on both my mom and dads will but this gets real confusing for me im the only child and my dads in a nursing home also he has demetia and he doesnt know who i am i sold there house privately and i dont want to lose my odsp cause of this what do i need to do since im sole server on wills but money goes in dads name and i can pay bills with but when he dies than i get money and i dont want to lose odsp please help me

  10. Mr Pope. Just read your article on the Henson trust, I just had a heart attack and I need to set up a Henson Trust for my diasable son in quebec.
    Can you please give me some ideas or contacts where I can start.
    Thanks Keith D.

  11. Hi.
    my question is that if a person receiving ODSP &CPP-D living with family but if a his spouse left him & don’t want live with the main applicant so in that situation the main ODSP Applicant ODSP &CPP-D benefits will reduce or stop or only the cut off benefits of his spouse?
    Kindly answer.

    Regards.
    Suban.

  12. Wonderful. Now if only I had anyone in my life who could leave me an inheritance.
    ODSP is so unfair. I was told, as a single parent with a child, that I could receive up to $4000 in ‘gifts’. Great, I said; do you know anyone who would like to give me that kind of gift? To rub salt in the wound, my odsp workers would tell me this over and over again.
    Not all of us have financially supportive family members. Not all of us have gifts of apartments, cars and gas, etc. ODSP is all we have, it’s not enough to live on, and I’m sick of it.
    Since Harris reduced the benefits by 20%, there are people like me who struggle to survive, month after month, year after year. This stressful situation only keeps us sick.
    Something needs to change.

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