Ontario Couple Seeks Financial Security for Disabled Son Through Henson Trust
Anthony, 62, and Chelsea, 61, have been retired in Ontario for approximately ten years, enjoying their golden years. However, their primary worry revolves around securing the financial future of their youngest child, who has a developmental disability and cannot manage his own finances. This concern has prompted them to seek expert guidance on estate planning and government benefit preservation.
Current Financial Setup for Their Son
The couple has implemented several measures to support their son. He currently receives benefits from the Ontario Disability Support Program (ODSP), Passport funding—an Ontario expense reimbursement program for adults with developmental disabilities—and the Canada Disability Tax Credit. Anthony and Chelsea maximize contributions to his Registered Disability Savings Plan (RDSP) annually, which now holds about $100,000. Additionally, they have a $700,000 insurance policy for him, and he is set to receive 60% of Chelsea's government pension upon their deaths.
The Role of a Henson Trust in Estate Planning
Anthony and Chelsea have a will in place that ensures both their adult children inherit assets equally. Crucially, the will includes a Henson Trust, a legal tool designed to provide for disabled beneficiaries without disqualifying them from government assistance like ODSP. Their older child and a cousin will act as trustees, managing the trust to safeguard their son's interests.
"Are we doing all the right things? Is a Henson Trust the way to go, given only up to $10,000 a year can be withdrawn?" the couple questions. They also note that ODSP payments may be clawed back once their son starts receiving Chelsea's pension, raising concerns about maintaining his access to saved funds and government aid.
Future Living Arrangements and Financial Goals
Their 28-year-old son currently lives with them, but they anticipate he may move to a retirement residence after their passing. They aim to ensure he can afford a comfortable lifestyle. To preserve capital for both children, the couple seeks advice on tax-effective strategies for withdrawing money from their Registered Retirement Savings Plans (RRSPs), which are fully invested in Guaranteed Investment Certificates (GICs).
Their plan involves reinvesting withdrawals into unregistered GICs and accepting the tax impact now, while in a low tax bracket, rather than leaving their children to face higher estate taxes later. "Is this the right approach?" they wonder, highlighting their proactive stance on financial planning.
Expert Insights from Financial Planner Ed Rempel
Ed Rempel, a fee-for-service financial planner, tax accountant, and blogger, affirms that Anthony and Chelsea are largely on the right track. "Anthony and Chelsea are doing most of the right things to help provide for their son for life," he states.
Rempel projects that if contributions continue and a 4% return from GICs is assumed, the RDSP could grow to $400,000 by the time their son turns 60. At that point, withdrawing about 2.5% annually—roughly $10,000 a year in future income, equivalent to $4,000 today—would be advisable, though he notes that GIC interest rates are barely above inflation.
If both parents pass away in 30 or more years, when their son is 60 or older, he will receive 60% of Chelsea's pension (estimated at half of a typical $60,000 to $80,000 salary), along with life insurance proceeds. Rempel recommends placing these funds in a Henson Trust and investing them; with a similar 4% return, this could generate $7,000 annually in today's dollars. Additionally, their son will qualify for Old Age Security (OAS) benefits at age 65.
In summary, the Henson Trust emerges as a vital tool for Ontario families navigating the complexities of disability and inheritance, offering a balance between financial support and benefit eligibility.
