Disability Trusts: Persons with Disabilities Benefits Issues

If you’re reading this section, you probably know that I spent twenty-five years of my legal career helping clients with “disability trusts” – making them, breaking them, managing them and everything in between. The following is a summary of what I learned about trusts during this period. While I believe the law is fairly up to date, I make no guarantees – doable check the regulations before relying on my comments.

In terms of my opinions, no guarantees that they’ll work for everyone. As Ministry staff learned that I would happily take them to court if they disagreed with my interpretation of the law, they often acquiesced. I’m not sure if they would be as accommodating without the genuine threat of legal action. . .

Persons with Disabilities Benefits (PWD) used to be called: “Disability Benefits II” (“DB2”) and “GAIN” – some people still use these terms.

Persons with Persistent Multiple Barriers (“PPMB”) benefits are NOT PWD benefits, and the PWD rules do not apply.

Assets/Income to Qualify for PWD

The key reason for planning (besides capacity issues) is that there are specific asset and income limits for PWD.

Asset exemptions are found in s, 10 of the Employment and Assistance for Persons with Disabilities Regulation (EAAPD Regs). There’s a huge list, but the ones most commonly used include:

1. $100K in liquid assets. ($200K with dependents) Any assets that can be converted to cash. NOTE: major screw-up area, asset is exempt, income from asset is NOT!

2. A primary residence (Home that person is living in. NOTE: major screw-up area, asset is exempt ONLY if the PWD recipient is living in it. The nano-second they move out, it ceases being an exempt asset. Serious problem when there are mental health/physical health issues.) Also a serious problem if PWD recipient doesn’t have sufficient mental capacity to sell/transfer property.

3. A motor vehicle (car, truck, boat, motorcycle). No maximum value. (People sometimes confuse the vehicle limit [$5000] found in the Employment and Assistance Regs – not applicable here.)

4. $200K in contributions to an RDSP ($200K isn’t in the Regs – that’s the limit under the federal RDSP legislation.) Growth is not considered an asset, so the RDSP can be worth $1.3 mil (or more), and as long as the contributions are under $200,000.01, it’s exempt. Long term planning tool, can be problematic for short term usage – see RDSP comments.

5. $200K in a “non-discretionary” trust (a trust where the PWD recipient has control).

My mantra for PWD recipients is: “just because you have the exemption, doesn’t mean you want to use it.” Need to weigh the pros/cons – especially with a, b, and d..

Income exemptions (NOTE: major screw-up area), Section 1 of EAAPD Regs – see distinction between “earned income” and “unearned income”.

In a nutshell, “earned income” is money received from employment and/or volunteer work. ($15,000/yr is exempt.) EAAPD Regs, Schedule B, s. 3

“Unearned income” is everything else – including cash from a trust. There is NO exemption for unearned income (with exceptions), and all income must be reported each month, and unearned income is deducted, dollar-for-dollar, from PWD benefits.

EAAPD Regs, Schedule B, s. 1 – exceptions for unearned income. (Note: “gifts” are exempt.)

Disposing of Assets

People on PWD who have received an inheritance will sometimes want to “give it away” to ensure that they continue to qualify. Won’t work – s. 27 of EAAPD Regs makes the person ineligible for PWD for two months for every $2000 of disposed assets.

Discretionary trust v. Non-discretionary trust

For PWD purposes, the Ministry of Social Development uses two terms for trusts:

1. Non-discretionary trusts – trusts where a person on PWD has control. These have a limit of $200K.

2. Discretionary trusts – trusts where the beneficiary has no control. There are no limits to these trusts.

There is no written “definition” per se. In terms of control, the beneficiary is deemed to have “control” if either:

1. They are the sole or controlling trustee, or

2. They have the power to collapse the trust.

The law is totally hazy, but non-discretionary trusts get their definition, more/less as follows:

1. s. 12(2) of the EAAPD Regs, says the person has a beneficial interest of $200K in the trust;

2. Ontario v. Henson 1989, 36 ETR 192 (Ont C.A.), and S.A. v. Metro Vancouver Housing Corp [2019] 1 SCR 99, hold that funds held in a discretionary trust have no beneficial interest for the beneficiary until the trustees exercise their discretion.

3. For years, the Ministry argued that a person on PWD could not be their own trustee. This kept being punted on appeal, given that the trust MUST: i) only make expenditures outlined in s. 12(1) of the EAAPD Regs, and ii) under s. 12(4) of the EAAPD Regs, there must be records available of all expenditures. The Ministry reversed its policy and permits PWD recipients to be their own trustees (for under $200K).

With Discretionary trusts (also called “Henson Trusts”), there must be a third party trustee and the trust can’t be collapsible by the beneficiary. (Ie. always watch for a Saunders v. Vautier scenario.) Discretionary trusts are NOT defined in the EAAPD Regs – they come from Ontario v. Henson 1989, 36 ETR 192 (Ont C.A.).

Are Trusts an asset for PWD Purposes?

Discretionary trusts – no. See Ontario v. Henson 1989, 36 ETR 192 (Ont C.A.).

Non-discretionary trusts – yes, but exempt under $200K. See s. 12(2) of the EAAPD Regs. (NOTE: the Ministry has the discretion to increase the limit on a non-discretionary trust. See s. 12(2) of the EAAPD Regs.)

Can a PWD create a discretionary trust?

Yes – if a person on PWD has more than $200K that they need to shelter, they are permitted to create a discretionary trust for themselves. Ie. they put the funds into a non-revocable/non-collapsible trust with an independent trustee, and the Ministry holds this to be a discretionary trust.

HISTORY – this is a policy and not a legal issue. The Ministry traditionally argued that placing funds in a discretionary trust constituted “disposing of assets” in breach of s. 27 of the EAAPD Regs, and would disqualify the PWD recipient. After multiple applications to court under the old Wills Variation Act, the Trust and Settlement Variation Act, and/or the Patients Property Act, asking a judge to create the trust, the Ministry threatened to retaliate. The Ministry’s legal department explained that if the trust was created by a s. 96 judge, they couldn’t pin it on the PWD recipient. The Ministry then had the human rights problem that a PWD recipient who could hire a lawyer COULD create a discretionary trust, while one who could not, couldn’t. The Ministry changed their policy.

MORAL – the Ministry has a number of really stupid rules. (Reason: the Ministry of Social Development handles both PWD and regular welfare, and many Ministerial staff consider ALL of their people to be “lazy welfare bums,” and treat them accordingly.) If you come across a stupid rule/attitude, there are often ways to fight them. Many years ago, the Ministry set up an internal trust department, with half a dozen employees who actually understand trust law – and also understand that folks on PWD aren’t “welfare bums.” While they still make dumb decisions, the mistakes are significantly less.

The trust department can be reached, via FAX at 1-855-771-8773.

Can a Committee Create Trust?

Sometimes a person who has been declared mentally incompetent has too many assets to qualify for PWD. What can their Committee do?

Legally, a Committee cannot gift the Adult’s assets, hence a Committee can’t legally create a trust. To do so, more/less, constitutes theft. However, there are two ways to address this issue:

1. Under s. 12(5) of the EAAPD Regs, a Committeeship is a deemed “non-discretionary trust”, and so if the assets are under $200K (or more if an exemption is granted under s. 12(3)), they’re exempt. However, as most Ministry staff don’t understand s. 12(5), it’s wise to send a letter to the Ministry, confirming the funds are in a deemed trust – and providing a copy of the Committeeship Order.

2. If it’s a large amount of money, sometimes it’s simpler to have the Committee apply under s. 28 of the Patients Property Act for the Court’s permission to create a trust.

Increasing Limit for a Non-Discretionary Trust

Non-Discretionary trusts have a limit of $200,000. As a person on PWD has the option of creating a Discretionary trust when there’s more than $200K, it’s rare that you’ll need to seek an increased limit.

However, in some cases, the PWD recipient does not want to give up control of their assets – THEY want to be the trustee, but they have more than $200K going into the trust. This is where you’ll need to request an increased limit to the trust, as per s. 12(3) of the EAAPD Regs.

Basically, what the Ministry wants to see is that the PWD recipient’s “disability related costs” are going to be more than the funds they have. . . and the funds will be used up before they’re 65.  (Hence, the younger the PWD recipient is, the more time you have to play with.)

So, first step is, figure out how many years you have to work with.  For example, if the PWD recipient is 32, you have 33 years to play with (65-32=33 – basic math!!!!!!!!!!!)

Second step is, figure out EVERY disability-related expense you can think of:  special shoes, trip to reduce anxiety, massage therapy, vitamin supplements, Canucks season tickets, house cleaning services, etc., etc, etc.

Third step is, figure out how often the disability expense occurs/how much.  Using our example:  Custom shoes:  $550/pair, two pairs a year = $1100/yr  House cleaning – $150 biweekly = $3900/yr,  Canucks seasons tickets = $1300/yr

Fourth step is, figure out the cost while on PWD = $36,300 (shoes) + $128,700 (house cleaning) + $42,900 (Canucks tickets) = $207,900.  In this example, the person on PWD $207,900 already spoken for. . .  If you’re trying to justify $240,000, you’ll need another expense.  However, it’s pretty simple math to make a bit of house cleaning, a few pairs of shoes, and a few hockey games morph into $240K 

Then finally, you need to justify it.  If you have a medical report/court decision outlining costs/future care report/doctor’s note, great!  But if the expenses are obvious to the disability, I’ve often just explained, in some detail, the relevance.  For example: the PWD recipient has athetoid CP: she drags her feet as she walks and destroys her shoes quickly; due to spasticity, she has a hard time keeping her condo clean; and she doesn’t have a huge social network, so Canucks tickets help her interact with others.  Remember, the Ministry already know the details of the PWD recipient’s disability (hopefully!), so as long as you’re consistent and clear – and can logically connect everything to the disability – you can often get away without supporting evidence.

Often it’s possible to justify with a younger/high need PWD recipient. However, with an older PWD recipient and/or someone with few needs, and a large amount of capital – it probably won’t be possible.

Ministry Approval

All trusts must be “approved” by the Ministry in order to be recognized for PWD purposes. “Approval” is a misnomer, because our trusts are already valid. . . . but the Ministry’s legal department must review them.

The Ministry will ONLY review constituted trusts. Hence, they’ll reject draft trusts, non-probated testamentary trusts, etc.

As the Ministry has a habit of losing trusts, and failure to advise the Ministry of a trust can affect the PWD recipient’s eligibility, ALWAYS keep a copy of the notification (FAX record, courier receipt, etc) on file. I’ve had several files where the Ministry has come back five to seven years later and claimed to have never received notice.

In giving notice, I send a certified copy of the trust deed along with a cover letter outlining:

1. The Settlor;
2. The beneficiary/PWD recipient;
3. The type of trust;
4. The approximate amount going into the trust;
5. The source of the funds; AND
6. A friendly reminder that the PWD Recipient still qualifies for PWD/

It either gets couriered to the Ministry office that the PWD recipient deals with, or gets faxed to the trust department at: 1-855-771-8773.

Normally, within 10-12 weeks, the PWD recipient will receive a letter from the Ministry, confirming receipt, and asking for:

1. The exact amount contributed to the trust (They want a copy of the cheque and/or bank balance); and

2. Evidence of the signatory on the trust’s bank account. (Usually a copy of the bank statement, account signatory card, or letter from bank confirming the signatories works).

If you read Ontario v. Henson 1989, 36 ETR 192 (Ont C.A.), you will understand that the Ministry has no right to ask for the funds in a discretionary trust. Never-the-less, the Ministry demands it anyway. I’ve reached the stage where I don’t fight the Ministry on this request. There’s no harm in disclosing, and if you don’t, the Ministry will sometimes drag out your access to PWD and make your life a living hell. Not worth defending this particular legal principle.

Permissible Trust Expenditures/Record Keeping

Once the trust is created, under s. 12(1) of the EAAPD Regs. a trustee can make the following expenditures for/on behalf of the beneficiary:

1. devices, or medical aids, related to improving the person’s health or well-being,

2. caregiver services or other services related to the person’s disability,

c) education or training,

d) maintenance/care of their primary residence; and

e) any other item or service that promotes the person’s independence.

All categories are UNLIMITED. Previously, costs to promote independence was restricted to $5484 per year, and then $8000 per year. In 2016, it became unrestricted.

“Promoting independence” covers almost everything: rent, trips, cell phones, a car, gas, Canucks games, clothes, etc.

NOTE: major screw-up area. . . some Ministerial staff claim that since the expenditure limit for “promoting independence” is unlimited, that the trust can simply give cash to the beneficiary. There is NOTHING in the Regs that supports this opinion, and in fact, doing so would put the trustee in breach of s. 12(4) of the EAAPD Regs. How can a trustee keep records of expenditures permitted in s. 12(1) if they don’t know what the expenditures are?

My advice to trustees is always to ensure that their expenditures can be supported by receipts, by either:

1. Paying directly for items by trust cheque (ie. sending a cheque to the dentist for the beneficiary’s care);

2. Paying for the item by credit card, and then reimbursing oneself for the amount on the CC statement;

3. Reimbursing the beneficiary for expenditures – with the trusts I managed, the beneficiaries would often give me a wad of receipts each month, and I wrote them a reimbursement cheque for the total amount. I then record each expenditure.

Obviously, the above three approaches don’t always work, as folks on PWD usually have little extra money and/or want to be independent. A few other strategies:

1. Give the beneficiary a “float” – $2k-$5K. Enables them to buy food, clothes, entertainment, etc. Then, they submit receipts at the end of the month (or whenever) and get the float recharged.

2. Help the beneficiary get a credit card, and the trustee pays the invoice. RISK: the Ministry may question “who is making the spending decisions”, and declare the trust to be non-discretionary.

3. Some expenditures aren’t receiptable. Ie. the trust sends the beneficiary on a trip to Mexico, and gives him/her a cash advance. Buying hotdogs on the beach typically won’t produce a receipt. Answer, if the trustee keeps really clean records, the Ministry won’t challenge a set of unreceipted, but reasonable expenditures.

Ultimately, record-keeping (or lack thereof) is the biggest cause of trust problems with the Ministry. Section 12(4) of the EAAPD Regs mandates that records be available on request.

Monthly Reporting of Trust Disbursements

The trustee MUST keep records of all trust disbursements. Providing that the expenditures comply with s. 12(1) of the EAAPD Regs, or they are a reimbursement for an expenditure permitted under s. 12(1), there is no need to report them monthly – only when requested.

However, any other non-trust related payments from the trust to the beneficiary or anyone else must be reported on the monthly remittance slip.

Bypassing cash rules for PWD trusts

Many parents want to give their sons/daughters cash payments from their testamentary trusts each month – ie. $800 per month. Many lawyers who don’t understand the difference between “earned income” and “unearned income” actually put these clauses in trusts. . .

Ultimately, it results in a zero net gain for the beneficiary, and a monthly unreceipted donation to the provincial government. Ie. the $800 gets paid to the beneficiary, the beneficiary reports it on his/her month-end report, and as it’s unearned income, the following month, their PWD cheque is reduced by $800.

This problem can be bypassed, indirectly. . . . while the trust can’t give cash, it can pay for expenses that the beneficiary would normally pay for him/herself. This indirectly puts funds in the beneficiary’s pocket. For example, if the goal is to get $800/mon into the beneficiary’s pocket, if the trust pays $150/mon towards the beneficiary’s cell phone, $500/mon towards the rent, $75/mon towards internet, and $125/mon towards movie rentals – all costs to “promote independence”, the trust has put $800/mon into the beneficiary’s pocket without giving him/her any cash/breaching any rules.

Shelter Allowance

When advising a trustee about making trust expenditures, it’s crucial to keep the PWD shelter allowance in mind.

As part of the monthly PWD stipend, the recipient gets up to $375/mon which must be applied to “shelter expenses” – rent, hydro, gas, mortgage payments, landline phone, etc. However, it’s provided on a “use it or lose it” basis.

So, as an example, if the PWD recipient is paying $650/mon rent, they will get a $375 shelter allowance as part of the allotment. However, if they don’t pay rent (ie. the trust pays for it), their shelter allowance gets slashed to zero. Hence, if the trustee wants to pay for rent/mortgage/etc, it’s important to ensure that the beneficiary is still paying, from their own pocket, at least $375 towards shelter costs. If the rent is $650/mon, then the trust can pay $275/mon towards rent without affecting the shelter allowance.

PWD & CPP-Disability

Folks who have been employed prior to going on PWD may also qualify for CPP-Disability.

Under s. 8 of the EAAPD Regs, a person MUST apply for CPP as well. As CPP defined is as “unearned income”, once qualified, the CPP payments get deducted from the PWD payments. For a person who qualifies for full CPP-Disability benefits, it usually means that they will net about $300/mon from PWD.

When these folks get an inheritance, the question often arises: “should I stay on PWD?”

Ultimately, it’s a numbers game. The beneficiary’s age plays a huge role, as well as their typical medical expenses. As a general rule (but it’s income tested) PWD ends at age 65. In order to help answer the question, you need to look at costs v. benefits.

Suppose they’re 50 years old, and have high prescription costs and medical equipment expenses.

If it costs them $4480 to create the trust, and say $1500/yr to manage it, it will cost them $26,900 to stay on PWD. However, they will receive an extra $54,000 in PWD payments, plus Pharmacare assistance, plus medical equipment disbursements. Financially, it seems worth it.

If older, and without extra needs, maybe not. If younger – probably!