Estate Planning and Disabled Children

A carefully considered estate plan can provide comfort to you because it helps to ensure that your wishes are carried out after your death. Having such a plan in place is often particularly important to parents of disabled children. Planning for the future care of a disabled child is complex and involves considering not only the softer issues of who can be trusted to look after the disabled child, but also legal issues, for example the tax consequences of a particular disposition and income assistance eligibility.

Business owners with a disabled child may face an additional level of complication. This is because the majority of a business owner’s assets may be tied up in the business and not easily liquidated. Further, business owners may have other children who are involved in the business and who will carry on the business after the parent’s death. If this is the case, liquidating the business is not an option, but the question of how the disabled child will be financially provided for looms large.

Some of the common options to provide for a disabled child include the use of “Henson Trusts”, “Insurance Trusts” and Registered Disability Savings Plans. Very generally, these planning tools are a means of providing financially for the disabled child, while preserving the disabled child’s ability to qualify for income assistance. Further, leaving assets in trust for the disabled child will help avoid the necessity of a guardianship application. Often parents are under the impression that they can appoint a guardian of the disabled child’s assets, but a court application is necessary. Leaving the assets in trust avoids this application because the trustee of the trust has legal title to the assets, while the disabled child has beneficial rights to the assets.

An “Insurance Trust” is particularly useful if the parents are relying on the proceeds of a life insurance policy to provide for the disabled child after their death. The “Insurance Trust” is named as the beneficiary of the parents’ life insurance policy and the trustees of that trust will hold the proceeds for the benefit of the disabled child. All of the earlier mentioned advantages apply to this type of trust, but it has the added advantage of avoiding probate fees that would otherwise apply if the proceeds of the insurance policy flowed to the parent’s estate.

These planning tools may, and should, be used by anyone with a disabled child. However, as noted, business owners may find themselves in a position where a complex plan is necessary to achieve their objectives. For example, if there are other children who want to take over the business, an Insurance Trust may be an appropriate way to equalize the parents’ estate and ensure that the disabled child is provided for. Alternatively, if the business is to continue, the parents may consider the use of a Henson Trust to hold shares in the business. If this is the case, the parents should also consider whether a shareholders’ agreement that provides for the distribution of profit in a particular manner is desirable to protect the disabled child’s financial interests.

There many options available and you will need to explore your family’s relationships, needs and goals with a trusted legal and tax advisor to ensure that an appropriate plan is developed for you and your family.

This article is intended for information purposes only and is not intended to be legal advice.  We suggest you contact a lawyer for advice on your particular business and circumstance.