Estate Planning for Disabled Beneficiaries in British Columbia

By: Nicole Garton, President of Heritage Trust

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A roadmap to secure the financial well-being of disabled people in BC.

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In memory of Ken Kramer, a wonderful colleague and leader in this field.

Table of Contents:

1. What is a Disability?2. Estate Planning Considerations for Disabled Beneficiaries 3. Government Assistance Available for Disabled People A. Federal Disability Assistance i) The Disability Tax Credit (DTC)/T2201 Certificate ii) CPP Disability Benefits B. BC Disability Assistance i) BC Disability Assistance Benefits ii) Qualifications to be a Person With a Disability (PWD)iii) Asset Test iv) Income Test v) Disability Related Costs vi) Temporary Exemption of Assets vii) Application Process to Obtain PWD Status 4. Estate Planning Options for Disabled Beneficiaries A. Trusts Generally B. Disability Assistance and Trusts i) Non-Discretionary Trusts ii) Discretionary Trusts C. Drafting Trusts i) Issues to Consider ii) Permitted Expenditures From a Trust: Disability Related Costs iii) Choosing a Trustee: Factors to consider D. Tax Considerations for Trusts i) Preferred Beneficiary Election ii) 21 Year Disposition Rule iii) T3 Trust Return and New Reporting Rules iv) Qualified Disability Trust (QDT)E. Registered Disability Savings Plan (RDSP)i) What is the RDSP ii) RDSP Eligibility iii) RDSP Holder Options & Contractual Competency iv) RDSP Withdrawal Considerations v) RDSP - LDAPs vs DAPs vi) RDSP 10 Year/Proportional Repayment Rule vii) RDSP - Shortened Life Expectancy viii) RDSP - DTC Loss Withdrawals ix) RDSP Taxation x) RDSP Closure xi) What happens when a beneficiary dies?F. RRSP/RRIF Rollovers G. RRSP/RRIF/RESP Transfer to RDSP H. RRSP/RRIF Transfer to Lifetime Benefit Trust (LBT)I. Life Insurance 5. Assisting an Adult Disabled Person with Decision Making A. Powers of Attorney B. Representation Agreements i) Standard Representation Agreement (section 7)ii) Non-standard Representation Agreement (Section 9)C. Nomination of Committee D. Committeeship Proceedings E. Wills 6. Disability Resources A. Organizations B. Informational Websites C. Booklets D. Application Forms E. Find a Lawyer F. Find an Accountant G. Find a Professional Trustee 7. Disability Precedents

1. What is a Disability?

The term “disability” refers not to a single state but rather to a wide spectrum of conditions. These include physical limitations, such as mobility, visual and hearing impairment. Various invisible disabilities, including cognitive limitations and mood disorders, are less readily identifiable but can be equally difficult.

Many individuals are born with a disability while others acquire a disability at some point in their lifetime due to an illness, accident or injury at work, play or home. Still others face functional limitations involving hearing, sight, cognitive and mobility impairment as a result of aging.

The United Nations Convention on the Rights of Persons with Disabilities provides as follows:

Disability is described as an evolving concept which results from the interaction between persons with impairments and attitudinal and environmental barriers that hinders their full and effective participation in society on an equal basis with others.

The Accessible Canada Act provides as follows:

Disability is defined as any impairment, including a physical, mental, intellectual, cognitive, learning, communication or sensory impairment — or a functional limitation — whether permanent, temporary or episodic in nature, or evident or not, that, in interaction with a barrier, hinders a person’s full and equal participation in society.

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Over six million Canadians 15 and older (22%) identify as having one or more disabilities. As the population ages, the number of people with disabilities and the severity of their disabilities are likely to increase.

2. Estate Planning Considerations for Disabled Beneficiaries

Many parents and grandparents fear for the future financial well-being of their disabled child or grandchild after they are gone. There are many practical, tax, and disability benefit considerations that must be contemplated when designing an estate plan that includes a disabled beneficiary. Proper planning will ensure that persons with disabilities remain eligible to receive provincial disability assistance while at the same time providing financial supports to assist with incapacity issues and also address any potential risks of susceptibility and undue influence.

There are various advance planning options available, such as:

Direct ownership of assets by a disabled person (for example, purchase a principal residence or vehicle for the disabled beneficiary?)

Trusts that benefit a disabled person;

Registered Disability Savings Plans (“RDSP”)

RRSP/RRIF Rollovers;

life insurance; and

a combination of the above.

What options you choose will depend on:

The nature of the disability

Does the individual have legal capacity? Is the disability physical, mental or a combination of both?

Whether the individual qualifies for, or may qualify for, federal or provincial disability assistance

Does the individual qualify for the Federal Disability Tax Credit? To qualify, the individual must have a severe impairment that affects “activities of daily living” and will last at least one year.

For eligibility in BC, the individual must have a severe impairment that affects “activities of daily living” and will last at least two years. The nature and amount of assets held by the disabled person can lead to disqualification for disability assistance. Non-exempt income can also reduce amount of disability assistance available.

The age and life expectancy of the disabled individual

Note that minors (under age 19) lack legal capacity which is problematic for direct ownership. Age 60 is the cut off age for contributions to an RDSP. The life expectancy of the individual is a consideration in terms of what planning options will be most suitable.

The personal circumstances of the beneficiary

Married or single, children or other dependants?

The net worth of the parent/grandparent and the existing assets of the beneficiary

Larger amounts of assets will likely require discretionary (Henson) trust planning. See commentary below on trusts.

3. Government Assistance Available for Disabled People

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Government programs to assist people with disabilities are constantly changing. Prosper Canada has created a Disability Benefits Compass, which is a useful tool to help understand what current benefits a disabled person may qualify for.

A. Federal Disability Assistance

Current federal disability benefits:

Every dollar counts - Benefits, credits and programs

Even things we don’t love can have benefits. Like doing your taxes.

https://www.canada.ca/en/revenue-agency/campaigns/every-dollar-counts.html

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i) The Disability Tax Credit (DTC)/T2201 Certificate

If you or your child has a disability, you or your child may qualify for the disability tax credit.

The disability tax credit (DTC) is a federal non-refundable tax credit given to (i) disabled individual taxpayers, and (ii) individual taxpayers upon whom disabled individuals are financially dependent and/or for whom they provide care, provided they meet the conditions set out in section 118.3 of the Income Tax Act.

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This is an important credit. If a person qualifies for the disability tax credit, he or she may also qualify for many other disability benefits. The ability to claim the disability tax credit is usually one of the criteria for claiming other amounts or accessing other programs (such as the ability to open an RDSP).

In order to receive the disability tax credit, you will need to complete Form T2201, “Disability Tax Credit Certificate”, and file it with the Canada Revenue Agency (“CRA”). The certificate must describe:

the nature of the impairment;

the manner in which the impairment has affected your (or your child's) ability to perform a basic activity of daily living; and

the expected duration of the impairment, which must be for a continuous period of at least 12 months.

Part of the certificate must be completed by a qualified practitioner, and the Canada Revenue Agency must validate the certificate before you will be entitled to receive the credit.

There are effectively three criteria for eligibility for the disability tax credit. You will be entitled to claim the credit if:

you are blind (even with the assistance of corrective lenses or medication);

you are markedly restricted in your ability to perform a basic activity of daily living; or

you would be markedly restricted were it not for extensive therapy to sustain a vital function.

Basic activities of daily living are described as:

perceiving, thinking and remembering;

feeding yourself;

dressing yourself;

speaking;

hearing;

eliminating (bladder or bowel functions); and

walking.

An individual may also qualify for the disability tax credit if he or she has multiple symptoms that, on a cumulative basis, have an impact similar to a marked restriction on any one activity of daily living. Individuals who have a severe and prolonged impairment do not need to prove a marked restriction in a basic activity of daily living if they can prove that they would have such a restriction if they were not receiving therapy that:

is essential to sustain a vital function;

is required to be administered at least three times each week for a total duration averaging not less than 14 hours a week; and

cannot reasonably be expected to be of significant benefit to persons who are not so impaired.

The individuals who are qualified to complete the Form T2201 are:

medical doctors and nurse practitioners;

optometrists (for vision impairments);

audiologists (for hearing impairments);

occupational therapists (for walking, feeding and dressing impairments);

psychologists (for mental function impairments);

speech language pathologists (for speaking impairments); and

physiotherapists (for walking or mobility impairments).

The DTC comprises a “Base Amount” and, if applicable, a “Supplemental Amount,” which is available to eligible persons who are under 18 years of age at the end of the tax year. The federal DTC portion is 15% of the disability amount for that tax year. The 15% is applied to the federal disability amount, which is a non-refundable tax credit that is indexed to inflation each year. The provincial DTC portion is approximately 10% (the percentage varies from province to province) of the disability amount for that tax year.

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The process to apply for the Disability tax credit is here:

How to apply - Disability tax credit (DTC)

How to apply for the disability tax credit (DTC) by completing form T2201. A medical practitioner must certify the form before submitting the application.

https://www.canada.ca/en/revenue-agency/services/tax/individuals/segments/tax-credits-deductions-persons-disabilities/disability-tax-credit/how-apply-dtc.html

ii) CPP Disability Benefits

Canada Pension Plan disability benefit toolkit

This toolkit is a guide to understanding the eligibility rules for the Canada Pension Plan disability benefits; and applying for the Canada Pension Plan disability benefit and the disabled contributor’s child’s benefit.

https://www.canada.ca/en/employment-social-development/programs/pension-plan-disability-benefits/reports/toolkit.html

If you have contributed to the Canada Pension Plan (”CPP”) through your employment and you have a "severe and prolonged" disability, you may be eligible to receive Canada CPP disability benefits. In order for a disability to be considered "severe", you must not be able to work regularly at any job, and in order for it to be "prolonged", your condition must be long term.

In order to receive disability payments, you must have contributed to the CPP during four out of the six years previous to the disability. If you qualify, benefits will start four months after you have been classified as disabled, and will continue until you begin to receive CPP retirement benefits, or the time of your death, whichever is earlier. You must be between the ages of 18 and 65 to qualify.

If you qualify to receive a disability benefit and if you have a dependant child under 18 years of age, a child who is between 18 and 25 and who is attending school full time, or a child over the age of 18 who has a disability, he or she may also be entitled to receive a monthly benefit.

CPP disability benefits are generally considered taxable income, but no tax withholdings will be made from the payments unless you request them. You should try to calculate the amount of tax you may have to pay as a result of receiving the payments, and either save the appropriate amount each month or fill out the form entitled Request for Voluntary Federal Income Tax Deductions to have the appropriate amount deducted from your cheque.

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The process to apply for CPP Disability Benefits is here:

Canada Pension Plan disability benefits: Apply

Steps to apply for the Canada Pension plan disability benefits

https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-disability-benefit/apply.html

B. BC Disability Assistance

Services for people with disabilities

If you are living with a disability in B.C., there are a vast array of government programs and services available to you.

https://www2.gov.bc.ca/gov/content/family-social-supports/services-for-people-with-disabilities

i) BC Disability Assistance Benefits

Recipients may receive provincial disability benefits in addition to CPP disability benefits, in the form of a top-up, if their CPP disability benefits fall below the provincial minimum or if they never contributed to CPP.

The BC Employment and Assistance for Persons with Disabilities Act (“EAPDA”) and the Employment and Assistance for Persons with Disabilities Regulation, B.C. Reg. 66/2023 provides social assistance to disabled individuals whose assets and income do not exceed certain thresholds.

The EAPDA and related regulations currently provide the following monthly benefits:

$1,483.50 if you are single;

$2,548.50 if both you and your spouse have Persons with Disabilities designation and have no children;

$1,828.50 if you are a single parent with one child;

$2,268.50 if you or your spouse have Persons with Disabilities designation and one child;

Note: you are living in a Community Living BC funded residence, you may get up to $1,483.50 per month in disability assistance. From your $1,483.50, you pay your Community Living BC service provider $841.13 per month for your basic living costs. This leaves you with up to $642.37 for personal expenses.

Other benefits you may be eligible for are set out here:

General and health supplements

When you receive assistance, you may be eligible for more money or services to cover extra costs.

https://www2.gov.bc.ca/gov/content/family-social-supports/income-assistance/on-assistance/supplements

ii) Qualifications to be a Person With a Disability (PWD)

A prescribed professional must provide an opinion that the individual has a severe mental or physical impairment that is:

likely to continue for at least two years; and

restricts the person’s ability to perform daily living activities without assistance either continuously or for extended periods of time.

Examples of daily living activities:

prepare own meals;

manage personal finances;

shop for personal needs;

use transportation;

perform housework;

move about indoors and outdoors;

perform personal hygiene and self care;

manage personal medication,

make decisions about personal activities or care; and

relate to, communicate or interact with others effectively.

There is a streamlined process if the applicant already qualifies for other prescribed programs, such as:

BC PharmaCare Plan P (Palliative Care);

At Home Program - Ministry of Children and Family Development;

Community Living BC; and/or

CPP disability pension.

iii) Asset Test

The Regulations provide that a family unit is not eligible for assistance if the family unit has assets with a total value of more than the following:

Single person: $100,000, if the family unit has one applicant or recipient who is designated as a person with disabilities (PWD);

Couple: $200,000, if the family unit includes one applicant or recipient who is designated as PWD and another applicant or recipient who has applied for and not been denied a designation as PWD or if the family unit includes two applicants or recipients who are designated as PWD.

If the family unit has assets that are in excess of the relevant threshold, benefits are lost for the month that the funds are received and every month after that until below the threshold again.

When determining eligibility, certain types of assets are exempt from the calculation, such as:

a Home;

a Vehicle;

a RESP;

a RDSP;

Up to $200,000 in a non-discretionary trust; and

Any amount in a discretionary (Henson) trust.

The EAPDA defines a "family unit" as an applicant or recipient and his or her dependants, and "applicant" and "recipient" as including a person's dependent spouse and other dependent adults. Therefore, the $100,000 limit will apply where the applicant or recipient does not have a spouse or other adult designated as a PWD who is dependent upon them.

It’s mandatory that the PWD file income taxes (with assistance for first time tax filers who are on disability assistance). Also, note that divesting of, or failing to pursue, assets may attract sanctions or a loss of PWD status.

Note: under BCEA legislation, a patient’s own real and personal property, which is controlled by a committee, is treated by the Ministry as if held in a discretionary trust for the adult and does not count towards a client’s assets.

See Trusts section below for more information on trust planning.

iv) Income Test

The monthly amount of disability assistance in British Columbia is reduced dollar for dollar by income, whether it is earned or unearned, unless a specific exemption applies. Here are some of the exemptions that apply:

Earned income exemption: A single person on disability assistance can earn up to $16,200 per year without it affecting their benefits. For couples, each partner can earn up to $16,200 per year;

Exemptions for unearned income: Inheritances, education and training allowances, bursaries, scholarships, and child support payments are exempt from being counted as income for the purpose of reducing disability assistance;

Trust income: Income received from a trust, such as payments made payable (T3), will reduce disability assistance unless the preferred beneficiary election applies;

RDSP withdrawals: Withdrawals made from a Registered Disability Savings Plan (RDSP) for any purpose are exempt from being counted as income.

Exempt payments from trusts and structured settlement annuities: payments received from a trust or a structured settlement annuity for "disability-related costs," a home, an RESP, or an RDSP are exempt from being counted as income. See below.

Ongoing gifts of cash: Ongoing gifts of cash from friends or family members for assistance with utilities or rent will not count as income.

v) Disability Related Costs

In British Columbia, certain payments received from a trust or a structured settlement annuity for "disability-related costs" are exempt from being counted as income for the purpose of reducing Disability Assistance. The following items or services fall under this category and are considered exempt:

Devices or medical aids to improve a person's health or well-being;

Caregiver or other services related to a person's disability;

Education or training;

Renovations to a person's principal residence to accommodate their needs;

Maintenance of a person's principal residence; and

Any other item or service that promotes a person's independence (unlimited amount).

vi) Temporary Exemption of Assets

Assets will be exempt for the purposes of calculating asset limits if they are contributed to an RDSP or trust within three months (i.e inheritance or accident settlement). Control over the assets by the PWD should be restricted during the interim period.

vii) Application Process to Obtain PWD Status

Prior to applying for the PWD designation, the applicant should start an application for or be in receipt of income assistance with the Ministry. At the intake appointment, an eligibility assessment will be completed to determine if the applicant (and their family members, if applicable) meet residency, citizenship and identification requirements, as well as income and asset tests.

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More information on qualifying for financial assistance through the BCEA Program can be found at: https://myselfserve.gov.bc.ca/ or applicants can contact the Ministry of Social Development and Poverty Reduction at 1-866-866-0800.

4. Estate Planning Options for Disabled Beneficiaries

A. Trusts Generally

Estate planning for disabled beneficiaries will often involve the use of trusts. In most circumstances, your client(s) will be the parent(s) who are planning for a child with a disability.

Funds held in a “Henson” trust are generally not treated as an asset of a PWD. Therefore, the PWD beneficiary may continue to qualify for provincial disability assistance through the EAPDA.

Trusts provide a way for PWD clients and their families to transfer and safeguard their assets for meeting disability‐related costs now and in the future while remaining eligible for disability assistance. Trusts are also useful tools where the PWD is unable to manage money for themselves due to capacity issues and/or have a higher level of susceptibility. A trust can be a safeguard to avoid future abuse when capacity fails. It can also be utilized to design a governance structure in advance with respect to the role of trustees.

A trust is a relationship under which a person, called the settlor, transfers property to another person, called the trustee, who holds that property for the benefit of another person, called the beneficiary.

Trusts can be “inter vivos” or “testamentary.” An inter vivos trust is created during the settlors lifetime. Pursuant to the Income Tax Act, most inter vivos trusts are taxed at highest marginal tax rate and are not eligibile for the principal residence exemption. Also beware of the section 75(2) income attribution rules which can operate such that income of one person (the actual recipient of the income) is attributed to and becomes income of another person (the transferor).

A "testamentary trust" is defined as a trust that arose "on and as a consequence of the death of an individual” and where no one other than the deceased has contributed property. In a testamentary trust, the settlor is the testator, also known as the “will-maker.”

Trusts can also be “discretionary trusts” or “non-discretionary trusts,” the distinction relating to the power and control, or lack thereof, each of the trustee and the beneficiary have in managing the assets of and administering the trust.

When leaving an inheritance to a beneficiary with a disability, it is generally not recommended to leave it to them directly. In most cases, it is recommended that any inheritance be left in a discretionary trust, otherwise known as a "Henson trust,” named after the hallmark decision in Ontario (Director of Income Maintenance Branch of the Ministry of Community and Social Services) v. Henson (1987), 26 O.A.C. 332 (Div. Ct.), aff’d in (1989), 36 E.T.R. 192 (Ont. C.A.)). A Henson trust is generally created in the terms of the parent's will and thus is a testamentary trust.

The central feature of a Henson trust is that it is discretionary, meaning the trustee is given ultimate discretion with respect to income and/or capital payments out of the trust to the person with disabilities for whom the trust was settled, the effect being that the latter (a) cannot compel the former to make payments to him or her, and (b) is prevented from unilaterally collapsing the trust under the rule in Saunders v. Vautier (1841), Cr. & Ph. 240, 41 E.R. 482.

Because the person with disabilities has no enforceable right to receive any property from the trustee of a Henson trust unless and until the trustee exercises his or her discretion in that person’s favour, the interest he or she has therein is not generally treated as an “asset” for the purposes of means-tested social assistance programs (Waters’ Law of Trusts in Canada). The Henson trust therefore makes it possible to set aside money or other valuable property for the benefit of a person with disabilities in a manner that won’t jeopardize that person’s entitlement to receive social benefits. This type of planning was recently upheld in S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4, [2019] 1 S.C.R. 99.

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Note: it’s important that parents of a child with a disability have the appropriate type of will. If a parent of a child with a disability dies without a will, then his or her child may inherit a part or all of their estate directly, which could potentially impact their ability to receive social assistance payments. An appropriately drafted will also help to avoid the intervention of the Public Guardian in the management of the trust property for a disabled individual.

B. Disability Assistance and Trusts

As noted above, trusts continue to be an effective vehicle in estate planning for PWDs to retain eligibility for disability benefits.

In addition to trust law, and the legislative and regulatory framework guiding disability assistance and trusts, the Ministry of Social Development and Poverty Reduction (“SDPR”) also publishes an information booklet titled Disability Assistance and Trusts (the “Trust Policy”). The terms of the Trust Policy, while aligned with the legislation and regulation, is merely a convenient statement of how the legislation, regulation, and trust law functions. Hence, practitioner familiarity with the EAPDA, Regulation, and trust law, generally, must take precedence.

The Ministry of Social Development and Poverty Reduction trust policy (”Trust Policy”) is found below:

Trusts

Clients who have the persons with disabilities (PWD) designation and applicants for the PWD designation may have extra costs directly related to or as a result of their disability.

https://www2.gov.bc.ca/gov/content/governments/policies-for-government/bcea-policy-and-procedure-manual/eligibility/trusts

BC Government Disability Assistance and Trusts Booklet.pdf

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BC Trust Policy identifies two types of trusts:

Non‐Discretionary Trusts; and

Discretionary Trusts.

These two terms describe what kind of power/control the trustee(s) have in managing the assets in the trust.

i) Non-Discretionary Trusts

As noted above, a PWD may be the beneficiary of up to $200,000 in a non-discretionary trust where the trustee holds assets in trust for the individual but does not have exclusive discretion over how assets are managed, i.e. the disabled beneficiary may have some input. Trust Policy does not specify how much control on the part of a beneficiary would make a trust non‐discretionary.

This non-discretionary trust is considered an exempt asset, so long as the capital contributed does not exceed $200,000, or if in excess then special approval must be given by the Minister. The trust should be be reviewed by the Legislation and Litigation Branch in Victoria. Note that payments from the trust will impact disability assistance unless it is used for “disability-related costs”, the acquisition of a home, an RESP, or an RDSP. There is no limit to the amount that can be paid from the trust to promote independence.

Even if the amount of the anticipated estate is less than $200,000, it may still be recommended that all amounts be left in a discretionary trust, since it is possible that the amount in the trust could grow over time to exceed the maximum allowable amount. It is also possible that the threshold will change in the future. Given the relatively low thresholds, if you intend to leave an inheritance to a child, you should consider leaving the assets in a discretionary Henson trust, particularly where the beneficiary with a disability has a mental infirmity that would prevent him or her from properly managing his or her own funds.

ii) Discretionary Trusts

A PWD can be the beneficiary of assets in any amount in a discretionary trust (i.e. a Henson trust) and retain eligibility for disability benefits. As noted above, in a Henson trust, the trustee holds assets in trust for the life of a disabled individual. The trustee has sole discretion as to how much, if any, income and capital is paid out to a disabled individual, or for benefit of disabled individual. The PWD beneficiary is deemed to hold a nominal “beneficial interest in assets held in the trust” but no right to income from the trust, nor can the PWD beneficiary be said to have a right to any of the estate capital.

A Henson trust can be testamentary or inter vivos, for example for accident settlements and outright inheritances that exceed asset limits.

C. Drafting Trusts

i) Issues to Consider

There are a number of issues to be aware of when designing a discetionary trust:

wording must include “absolute and unfettered discretion” and “shall not vest” in the beneficiary;

There should be a class of beneficiaries in addition to the disabled beneficiary ‐ “ultimate beneficiary” clause;

The trust can state the settlor’s preference that funds be used exclusively for the disabled beneficiary regardless of any ultimate beneficiary to excuse the trustee from the “even‐handed” principle;

If the beneficiary can collapse the trust or otherwise control assets, for example by controlling who is trustee, the Ministry will treat it as a non-discretionary trust; and

If the beneficiary transfers, or directs the transfer, of assets to a discretionary trust, it may be considered a “divestiture of assets.’

ii) Permitted Expenditures From a Trust: Disability Related Costs

As with non-discretionary trusts, payments from the trust will impact disability assistance eligibility unless the funds are used for “disability-related costs” or to promote independence, specifically:

Caregiver services or other services related to that person’s disability.

Education or training.

Home renovations necessary because of your disability.

Home maintenance repairs.

Medical aids.

Any other item the trustee/beneficiary considers necessary to promote the person’s independence (no limit).

iii) Choosing a Trustee: Factors to consider

Questions for the client to consider:

Do you want to have the ability to remove and/or replace trustee(s) or permit them the opportunity to resign?

Does the trustee have knowledge of Trust Law, EAPDA, Regulation and Policy?

Where does the intended trustee live (logistical and tax considerations)

Does the trustee know the disabled beneficiary and is there an ongoing relationship between that trustee and disabled beneficiary?

Avoiding Conflict ‐ Family / Friend versus selecting a Corporate Trustee

D. Tax Considerations for Trusts

i) Preferred Beneficiary Election

If the beneficiary with a disability meets certain conditions, he or she may be able to take advantage of the "preferred beneficiary election", which is provided for in the Income Tax Act. This election provides that certain beneficiaries may report the income earned in the trust in their own tax return, yet have the income itself remain in the trust and continue to be managed by the trustee of the trust. In general, individuals must qualify for the DTC in order to be a preferred beneficiary. However, adults who don't qualify for the DTC but are dependent on another person because of mental or physical infirmity can qualify as preferred beneficiaries if their income is below the basic personal amount.

If the beneficiary is in a very low tax bracket, it may be beneficial to have the trust income taxed in their name personally. In order to use the preferred beneficiary election, the beneficiary must be either the spouse or common-law partner of the person who created the trust, or a lineal descendant or spouse or common-law partner of a lineal descendant. This can include a child, step-child, grandchild, step-grandchild, great-grandchild or step-great-grandchild or a spouse or common-law partner of any of those persons.

ii) 21 Year Disposition Rule

Henson trusts usually continue for the lifetime of the disabled beneficiary. Therefore, they often exist beyond 21 years. Under the Income Tax Act there is a "deemed disposition" of all of the assets in the trust on the 21st anniversary of the creation of the trust (subject to a few exceptions). The trustees of the trust should give consideration to triggering some of the capital gains in the trust a few years before the 21st anniversary, to avoid having all the gains taxed at one time.

iii) T3 Trust Return and New Reporting Rules

All trusts are required to maintain records and to abide by any terms in the trust documents (typically spelled out in the will). A T3 trust return must be filed annually by the trustee.

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In addition, new trust reporting rules will apply to taxation years ending after December 30, 2023. The rules will require trustees to gather and report significantly more information, so trustees need to be prepared to meet these requirements; the filing deadline is March 30, 2024, for a trust with a December 31, 2023 taxation year end.

For taxation years that end after December 30, 2023, the new reporting rules will require the trustee to report the name, address, date of birth (in the case of an individual), jurisdiction of residence and taxpayer identification number (TIN) for each of the:

settlor;

trustee;

beneficiary, and

person who has the ability to exert influence over trustee decisions regarding appointment of income or capital of the trust (e.g. a protector) in the year.

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Note: Qualified disability trusts will be exempt from this additional reporting requirement.

If the PWD qualifies for the disability tax credit (“DTC”), it’s important to ensure the discretionary testamentary trust meets the conditions necessary to be considered a “qualified disability trust” (a “QDT”) to obtain access to graduated tax rates and potential access to the principal residence exemption. See below for further information in this regard.

iv) Qualified Disability Trust (QDT)

Another potential benefit to creating a Henson trust is the preferential tax treatment that may be available so long as the trust meets the conditions necessary to be considered a "qualified disability trust" ("QDT") under the Income Tax Act. Unlike most trusts, which are subject to the highest marginal rate of tax on all of their income, QDTs can take advantage of the graduated rates of tax. A QDT trust is also allowed the primary residence exemption. The purpose of QDT trusts is to allow deceased taxpayer a tax efficient mechanism to provide income and capital to assist a disabled beneficiary of their estate. A QDT must have a December 31st year end.

There are a number of conditions that must be met in order to be a QDT, including:

the trust must be a testamentary trust that arose on and as a consequence of a particular individual's death;

the trust must be resident in Canada for the entire trust year (residency is determined by the "central management and control" of the trust, which is a question of fact, but usually based on the residency of the trustees of the trust);

the trust must elect with one or more beneficiaries to be a QDT for the trust year and provide the social insurance number for each of those beneficiaries. There is no relief for filing a late election, and if the beneficiary is incapable, they may need a court appointed guardian to help them make this election;

each of the electing beneficiaries must be an individual who qualifies for the DTC and does not jointly elect with any other trust to be a QDT (an individual can only have one QDT); and

The electing beneficiaries of a QDT must be named beneficiaries in the will (cannot be unnamed unborn children or described by reference to a class of individuals such as “children” or “issue”).

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A QDT will be subject to pay a recovery of tax in respect of any previous year if 1) none of the beneficiaries at the end of the year was an electing beneficiary for the preceding year; 2) the trust ceased to be resident in Canada; or 3) a capital distribution was made to a non-electing beneficiary.

The amount of the recovery tax is the amount of tax that would have been paid in a previous year if the trust had been subject to the highest marginal rate of taxable income for that year, excluding amounts that were subsequently distributed as capital to an electing beneficiary. The intent is to claw back any tax savings for income taxed at a graduated rate which was later distributed as capital to a non-electing beneficiary.

Therefore, unless the payment of the income would jeopardize the beneficiary's ability to access social assistance or certain medical or drug programs, it may be recommended that the income be paid out every year (or perhaps distributed as capital to an electing beneficiary, depending upon the maximum capital allowed under the social assistance rules, after it has been taxed in the hands of the trust at a lower marginal rate).

Trustees of QDTs should confer with an accountant to determine the optimal manner in which to allocate the trust income between the beneficiary and trust. If a decision is made to keep the after-tax income in the trust, then provision should be made for the recovery tax after the death of the disabled beneficiary.

Also, in the year in which the electing beneficiary dies, the trust ceases to be a resident of Canada or a distribution is made to a non-electing beneficiary, then not only is the recovery of tax owing, but the graduated rate taxation will no longer apply. Therefore, to the extent there are unrealized capital gains in the QDT, they will be taxed at the highest marginal rate if they are not triggered until such time as the capital is distributed to non-disabled beneficiaries. Again, the trustees of the QDT should confer with an accountant to determine if capital gains should be triggered in the trust from time to time, if this would result in lower taxation, and it is anticipated that they will be distributed to an electing beneficiary.

In cases where there are several intended beneficiaries of an estate for whom a trust will be created, it’s recommended that they each have their own separate trust, particularly when one of the beneficiaries qualifies for the DTC. If there are non-disabled beneficiaries and distributions are made to them, it may make the accounting process quite complicated due to the recovery tax mechanism. Just ensure not to “taint” the QDT if funds from other testamentary trusts “pour” over into the QDT.

E. Registered Disability Savings Plan (RDSP)

Registered Disability Savings Plan

This website is provided by Plan Institute, a not-for-profit organization based in Vancouver, B.C. It was created to provide families and professionals across Canada with the most accurate and up-to-date information available on the RDSP. All of our services are … Read More

https://www.rdsp.com/

www.canada.ca

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4040/rrsps-other-registered-plans-retirement.html

i) What is the RDSP

Registered disability savings plans ("RDSPs") are a long-term savings vehicle for persons with disabilities, similar to RRSPs. Unlike RRSPs, contributions are not tax deductible, but RDSPs do grow on a tax-deferred basis within the plan and may attract the payment of government grants and bonds.

You set up a registered retirement savings plan through a financial institution such as a bank, credit union, trust or insurance company. Your financial institution will advise you on the types of RRSP and the investments they can contain.

Anyone can contribute to an RDSP (as long as the person directing the plan accepts the contribution). Once an RDSP is established for the benefit of a specific disabled individual, friends and family— even the disabled individual — can contribute to that plan. However, all funds in the RDSP are for the benefit of the disabled individual. A family member who contributes to the RDSP cannot get his or her contributions back.

In order to open a RDSP, the beneficiary must be eligible for the DTC, discussed above, and be a resident of Canada at the time any contributions are made. Only one account may be opened in respect of any one beneficiary, and there is a lifetime contribution limit of $200,000, although there are no annual contribution limits. Contributions are not allowed after the year in which the disabled beneficiary turns 59. It is possible to switch a RDSP from one financial institution to a new financial institution.

Contributions to an RDSP may result in the payment of a Canada Disability Savings Grant ("CDSG") based on the "family net income" of the beneficiary and the amount contributed, if the family earns less than approximately $100,000 annually. The government will match the first $500 in contributions with a CDSG in the amount of 300% of the contribution, and 200% of the next $1,000 contributed in a taxation year, to a maximum annual grant of $3,500. This means that a contribution of $1,500 can result in $3,500 in grants, for a total of $5,000 in the RDSP in any given year. Where the family income is over $100,000, the CDSG will be matched on a basis of 100% of annual contributions up to $1,000, for a maximum annual grant of $1,000. The maximum total amount of grant that may be received by any one beneficiary regardless of family income over the course of their lifetime is $70,000.

In addition, families with very low income levels may qualify for a Canada Disability Savings Bond ("CDSB") of up to $1,000 per year, with a $20,000 lifetime limit. The CDSB is paid where the individual has income below approximately $33,000, at which point a clawback begins. If the family earns more than approximately $50,000, no CDSB will be paid. Persons with a disability who are from very low-income families should open an RDSP simply to obtain the CDSB, since the bond is payable even if no contribution is made. Once a beneficiary turns 18, it is only their income (and their spouse's) which is relevant when calculating "family net income", so adult persons with a disability who earn less than $33,000 should open an RDSP simply to receive the $1,000 bond, although they will not be able to immediately withdraw this money without penalty, as discussed below

Unused CDSG and CDSB entitlements can be carried forward 10 years, and there is no impact on federal or provicial disabilty benefits. CDSGs and CDSBs will not be payable after the year in which the beneficiary turns 49.

ii) RDSP Eligibility

As noted above, to be eligible, an applicant must:

Be a Canadian resident;

Have a Social Insurance Number (SIN); and

Be approved for the T2201 Disability Tax Credit Certificate.

Age Criteria:

Matching Bonds and Grants are available up until age 50 for the disabled beneficiary, based on income;

Contributions can only made while the disabled beneficiary is under 60; and

Disabled beneficiaries must open their RDSP no later than December 31 of the year they turn 59.

iii) RDSP Holder Options & Contractual Competency

For a Minor

Parents or legal guardians can set up the plan and have the option to remain as sole or co-holder once the beneficiary becomes an adult.

For an Adult

The holder and beneficiary can be the same person, although it may be somebody else dependent on contractual competence. The responsibility of determining ‘contractual competency’ is often left to the discretion of the financial professional. An adult who does not have contractual competence requires a legal guardian (committee in BC).

iv) RDSP Withdrawal Considerations

v) RDSP - LDAPs vs DAPs

Withdrawals – Two Types of Payments

1. Disability Assistance Payment – DAP

Any payment from an RDSP to the beneficiary or the beneficiary's estate; and

only available at some financial institutions.

Lifetime Disability Assistance Payment – LDAP

Must begin when the disabled person turns 60 and once started must continue;

Payments which, once started, are payable at least annually until either the plan is terminated or the beneficiary dies;

Annual maximum based on life expectancy and value of plan;

LDAP Formula calculates payments to end at age 83; and

must be available for every RDSP.

vi) RDSP 10 Year/Proportional Repayment Rule

Once money goes into the plan, it has to stay there for ten years before the person with a disability can take it out without penalty. Generally speaking, any time $1 is withdrawn from an RDSP, that will trigger a clawback of $3 of the "assistance holdback amount", which is the total amount of grants and bonds paid into the plan in the preceding ten-year period. The only exception to this is where the RDSP beneficiary's doctor certifies that his or her life expectancy is less than 5 years. Therefore, RDSPs are generally recommended in situations where it is anticipated that the beneficiary will not require the funds for many years.

Assistance Holdback Amount (AHA): The AHA is made up of all the grants and the bonds that have been paid into the RDSP within a 10-year period for a beneficiary by the Government of Canada, less any amount of grant and bond that has been repaid to the government during that 10-year period. The AHA is the maximum amount of money that can be subject to repayment. It is important to note that once grants and bonds have been repaid to the government, the beneficiary is no longer eligible to receive those.

vii) RDSP - Shortened Life Expectancy

A medical practitioner must certify in writing that the beneficiary has a life expectancy of 5 years or less. In that case, there are two options:

opt to keep the plan as an RDSP which is now in a specified year; or

change the plan to an SDSP.

A specified disability savings plan (SDSP) is a measure to provide beneficiaries who have shortened life expectancy with greater flexibility to access their savings from an RDSP.

There is no consequence to living past the five year life expectancy date, and the plan can be reverted at any time

viii) RDSP - DTC Loss Withdrawals

As of January 1, 2021, if a beneficiary loses approval for the Disability Tax Credit (DTC), their RDSP will remain open. However, during this time:

no one can make contributions to the plan;

they cannot receive grants or bonds;

they cannot catch up on grants or bonds from this period; and

registered retirement savings can only be rolled over into the plan within 4 years after the year in which the beneficiary loses DTC approval.

Grant and bond repayment does not function as usual. Withdrawals are calculated differently depending on the beneficiary’s age.

ix) RDSP Taxation

When money is in an RDSP, no tax is paid. Personal contributions are not taxable at any time. Each distribution paid to a beneficiary is a mix of taxable and non-taxable amounts. Withdrawals may be subject to tax if the withdrawal amount is more than the total of two non-refundable tax credits: the basic personal amount (BPA) and the disability amount (DA).

The federal maximum amount for 2022 is $14,398 for the BPA plus $8,870 for the DA. This means that if the taxable portion of one’s withdrawals in 2022 are equal to or below $23,268 there will be no tax withheld at the source.

If there is tax that is going to be withheld, the RDSP issuer (one’s financial institution) will automatically make a withholding for tax before issuing the payment. This is not the same as paying the tax. Instead, the financial institution will report both the gross taxable amount and the withholdings to the Canada Revenue Agency (CRA) and to the beneficiary through a tax form.

x) RDSP Closure

Closing an RDSP – Optional Closure

The holder(s) of an RDSP can close the plan only in one of the following situations:

the RDSP beneficiary is no longer eligible for the disability tax credit;

there are no funds left in the plan;

the amount of grant and bond in the RDSP is more than the amount of contributions at the beginning of the year, and the only amount now left in the plan is the assistance holdback amount; and

RDSP payment rules allow the holder(s) to ask for a withdrawal of all funds (minus any assistance holdback amount) in the plan.

Before the financial institution closes it, they must repay the government any assistance holdback amount that is left in the plan. Any remaining amounts in the plan are then paid to the beneficiary as a disability assistance payment.

Closing an RDSP – Mandatory Closure

When the RDSP beneficiary dies, the plan must close by the end of the calendar year after the year of death. When the financial institution closes the RDSP, they must repay the government any assistance holdback amount that is left in the plan. They must then pay all remaining amounts in the plan to the beneficiary's estate as a disability assistance payment.

The CRA will deregister an RDSP if it does not meet the conditions described by the law. To prevent the CRA from deregistering an RDSP, the plan must:

meet the conditions under subsection 146.4(4) of the Income Tax Act;

meet with conditions of the Canada Disability Savings Act or its regulations; and

be administered in accordance with its plan terms.

xi) What happens when a beneficiary dies?

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Provided they have the requisite legal capacity to do so, it’s important for the beneficiary to have a will. When a beneficiary dies, all personal contributions to the RDSP will be paid to the beneficiary’s estate. If there is no will in place, the assets will be distributed according to intestacy law.

The holdback amount, which is made up of any grants and bonds paid into the RDSP within the last 10 years, must be repaid to the government. Any remaining grants, bonds, investment income, and proceeds from a rolled over account will go to the beneficiary’s estate as well. Personal contributions will never be returned to the original contributor unless the contributor was the beneficiary.

F. RRSP/RRIF Rollovers

Normally, when a taxpayer dies, any amounts held in an RRSP or RRIF are taxed to the deceased (meaning that the tax liability will come out of the estate), unless the amounts are transferred to the deceased's spouse or common-law partner, or a financially dependent child under the age of 18. These individuals are then usually able to contribute a corresponding amount to their own RRSP or purchase an annuity in order to continue deferring the tax for some period of time.

However, it is also possible to transfer amounts to an RRSP or RRIF of a child or grandchilld with a disability who is over age 18 on a tax-deferred basis if certain conditions are met. In order to do so, the child or grandchild must have been financially dependent upon the deceased due to a mental or physical infirmity.

The basic threshold under which the child is presumed to be financially dependent is equal to the basic personal exemption. If the child qualifies for the DTC, the threshold is increased by the disability tax credit amount. The deceased must have (prior to the deceased’s death) named the infirm child or grandchild as the beneficiary of the RRSP.

If the financially dependent child does not qualify for the disability tax credit, the tax deferral is a limited one. The deferral expires when the child reaches age 18. The RRSP/RRIF payout must be used to acquire a fixed-term annuity. The annuity term has to be no greater than 18 minus the child’s age. In other words, the annuity cannot last beyond the financially dependent child’s 18th birthday.

If the financially dependent child qualifies for the DTC, the deferral does not expire on the child’s 18th birthday. In this case, the assets are left to the financially dependent child and the child places the assets in the child’s own RRSP/RRIF. As a result, tax arises only when the child withdraws the funds from the child’s RRSP/RRIF.

However, there may be significant drawbacks to naming a child as a direct beneficiary of an RRSP or RRIF, or designating them as the beneficiary of such an asset in a will, for some of the following reasons:

If the person with a disability receives the asset directly, it may affect their eligibility for social assistance payments.

If the beneficiary has a mental disability, they may not be capable of managing the funds. If they receive the funds directly, then the Public Guardian and Trustee of BC may intervene to manage the funds, usually charging a fee. It may be preferable to choose a trusted relative, friend, or corporate trustee to manage the funds, again by placing them in a trust.

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In short, although the Income Tax Act does allow a transfer of registered assets on a tax-deferred basis to a financially dependent child with a disability, it is not generally recommended as an estate planning strategy. The complications that can arise as a result of designating a person with a disability as a direct beneficiary of an RRSP or RRIF are generally not worth risking for the sake of the tax deferral.

When leaving RRSP funds to a person with a disability, it is generally recommended that the beneficiary designation be indicated as "estate". Once the taxes are paid, the after-tax amount can be divided between all of the beneficiaries as provided in the will, and any amounts intended for a beneficiary with a disability can be left in a Henson/qualified disability trust.

G. RRSP/RRIF/RESP Transfer to RDSP

It is possible to make a tax-deferred transfer of a deceased individual’s RRSP to the RDSP of a financially dependent infirm child or grandchild. The deceased must have (prior to the deceased’s death) named the infirm child or grandchild as the beneficiary of the RRSP.

The RDSP beneficiary must have been financially dependent on the deceased individual by reason of physical or mental infirmity. An infirm child or grandchild is generally considered to be financially dependent if the income of the child or grandchild for the year preceding the year of death does not exceed a specified threshold. If the infirm child or grandchild has income that exceeds this amount, it will be necessary to prove financial dependence.

The amount of RRSP proceeds transferred to the RDSP cannot exceed the available RDSP contribution room in respect of the infirm child or grandchild. Accordingly, no more than $200,000 can be transferred from the RRSP to the RDSP (this amount is reduced by any previous contributions made to the RDSP by any private individual).

The amount transferred from the RRSP will count against the $200,000 lifetime RDSP contribution limit but will not qualify for matching government grants (the Canada Disability Savings Grants). Since the amount transferred from the RRSP will not have been subject to income tax, that amount will be taxed as income when withdrawn from the RDSP.

You can transfer money from a child’s RESP into that same child’s RDSP if certain conditions are met. You’ll have to pay back education savings grants to the government, but so long as the criteria is met, you won’t have to pay any taxes on those earnings in the RESP.

Here is a graph to help clarify what registered funds are permitted to be rolled over into a RDSP:

H. RRSP/RRIF Transfer to Lifetime Benefit Trust (LBT)

Established in a a will, the LBT is intended to address the problems that can arise if the financially dependent child suffers from a mental impairment. Under the LBT structure, you can leave your RRSP/RRIF on a tax-deferred basis to a trust (not a RRSP or RRIF) established for a mentally infirm and financially dependent child.

The trust transfer is conditional on the child being dependent, because of mental infirmity, on the deceased individual immediately before their death and must be a personal trust where, during the child’s lifetime, no person other than the child may benefit from the income or capital of the trust (s. 60.011 of the Act).

The entire RRSP/RRIF payout must be used to purchase a qualifying trust annuity (QTA). An annuity is a form of investment that pays an annual amount for the remaining lifetime of a specified person (in this case, the infirm dependent) or for a fixed term (in this case, the maximum fixed term would be equal to 90, minus the age of the child).

There is some negotiation room as to the exact terms of the annuity acquired. However, the annual payments will usually depend on economic expectations and interest rates that are prevalent at the time that the annuity is purchased.

The LBT would acquire the annuity and would receive the annuity payments. The trustee would then decide whether and to what extent to pass the annuity payments through to the child. All amounts passed through to the child would be taxed as ordinary income of the child. On the death of the child, any remaining value of the annuity will be taxed as ordinary income of the child. The terms of the LBT could provide that the after-tax amount be paid to other persons after the death of the child.

I. Life Insurance

Clients with modest estates may consider funding a Henson trust for a child with disabilities via a whole life or universal life insurance policy. At current rates, a 50-year-old female could obtain $100,000 of universal life coverage for less than $1,500 in annual premiums. If the disabled beneficiary still lives with their parent/guardian and receives disability benefits, the benefits could fund the annual premium within a couple of months each year, guaranteeing an inheritance that would take decades to accumulate via saved premiums.

5. Assisting an Adult Disabled Person with Decision Making

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There is a presumption of capacity in that adults are considered capable to make their own decisions to decide their care and financial management so long as they have capacity, and when they do not, the least restrictive means must be chosen. Disabled adults should be included to the maximum extent possible in decision making.

Capacity requires the ability to understand the information that is relevant to the decision to be made (such as where one will live and what care may be required) and the ability to appreciate the reasonably foreseeable consequences of the decision. Capacity may change over time and must be reassessed when there is a change. It is not black or white, but rather a continuum, and there may be capacity to make simple decisions while a lack of capacity to handle more complex matters. Decision making authority assumed by others must not usurp decision making more than is necessary in the circumstances.

Authority may be needed for parents to continue to provide care and protection for adult disabled children upon reaching age of majority (19 in BC). Access to medical, financial and educational records and decision making for adults is restricted without legal authority, including access to federal and provincially funded programs and benefits. This can come as a surprise to parents who have cared for a disabled child since birth. It’s important to plan ahead and make a committeeship application (if necessary), in advance of the disabled beneficiary’s 19th birthday.

Decision Making Options Available for Adult Disabled Beneficiaries:

Powers of Attorney for legal and financial affairs;

Representation Agreements for health and personal care issues and “routine management of the adult’s financial affairs”;

Nominations of Committee under the Patients Property Act;

Committeeship proceedings under the Patients Property Act; and

Wills to deal with property after death.

A. Powers of Attorney

A power of attorney is a document under which an adult (sometimes called the “donor”) grants another person the power to administer the adult’s financial and legal affairs. At common law, a power of attorney ceases to be effective if the adult (donor) becomes incapable. To be an “enduring power of attorney”, s. 14 of the BC Power of Attorney Act requires that the document must contain the provision that the attorney is to continue despite the adult’s incapability.

An adult must have legal capacity to execute a valid power of attorney. The test for capacity to execute an enduring power of attorney is found in ss. 11 and 12 of the Power of Attorney Act. These sections include a presumption of capability provision and a definition of what renders an adult incapable of granting an enduring power of attorney. The capacity test in s. 12 provides that an adult is incapable of understanding the nature and consequences of the proposed enduring power of attorney if the adult cannot understand all of the following:

the property the adult has and its approximate value;

the obligations the adult owes to their dependants;

that the adult’s attorney will be able to do on the adult’s behalf anything with respect to the adult’s financial affairs, except make a will, subject to the restrictions contained in the enduring power of attorney;

that unless the attorney manages the adult’s business and property prudently, their value may decline;

that the attorney might misuse the attorney’s authority;

that the adult may, if capable, revoke the enduring power of attorney; and

any other prescribed matter.

B. Representation Agreements

In the absence of advance planning, health care decisions for an adult may be made under the Health Care (Consent) and Care Facility (Admission) Act by a temporary substitute decision-maker. The Representation Agreement Act provides for the advance appointment of a representative for health and personal care issues and “routine management of the adult’s financial affairs”.

Two basic types of representation agreements are available—a standard agreement (under s. 7 of the Representation Agreement Act), and a “non-standard” (or “enhanced”) agreement (under s. 9).

The Act defines the level of capacity needed to execute a standard representation agreement. Section 8 of the Act provides that an adult may make a s. 7 agreement even though they are incapable of making a contract or managing their personal or financial affairs. This diminished level was created to allow an adult with less than full (or any) legal capacity to enter into such an agreement; but a s. 7 agreement is limited in the scope of its authority. The enhanced agreement requires full mental capacity, but can be very broad in its authority.

i) Standard Representation Agreement (section 7)

s. 7 agreements are designed to govern decisions about an individual’s personal care and the routine management of the person’s financial and legal affairs.

Under s. 7 of the Representation Agreement Act, a “standard” agreement can be made by an individual who has less than full legal capacity.

The test for capacity to enter into a “s. 7 agreement” is set out in s. 8:

8 (1) An adult may make a representation agreement consisting of one or more of the standard provisions authorized by section 7 even though the adult is incapable of
(a) making a contract,
(b) managing his or her health care, personal care, or legal matters, or
(c) the routine management of his or her financial affairs.
2) In deciding whether an adult is incapable of making a representation agreement consisting of one or more of the standard provisions authorized by section 7, or of changing or revoking any of those provisions, all relevant factors must be considered, for example:
(a) whether the adult communicates a desire to have a representative make, help make, or stop making decisions;
(b) whether the adult demonstrates choices and preferences and can express feelings of approval or disapproval of others;
(c) whether the adult is aware that making the representation agreement or changing or revoking any of the provisions means that the representative may make, or stop making, decisions or choices that affect the adult;
(d) whether the adult has a relationship with the representative that is characterized by trust.

Section 7(1)(b) authorizes decisions concerning routine management of the adult’s financial affairs, including, subject to the regulations, including:

(i) payment of bills,(ii) receipt and deposit of pension and other income,(iii) purchases of food, accommodation and other services necessary for personal care, and(iv) the making of investments;

A s. 7 representative has the power to open a registered disability savings plan (“RDSP”) and to make an election in respect of a qualified disability trust (“QDT”). Gifting an adult’s property is one of the activities that is not permitted, and thus a representative cannot settle a trust on behalf of an adult (Re Apsassin (24 March 2010), Vancouver S099195 (B.C.S.C.)).

To make a s. 7 agreement, the adult must appoint a monitor, unless the representative is the adult’s spouse, a trust corporation, or a credit union, or if there are two or more representatives that must act together. If the adult does not appoint a monitor, the Public Guardian and Trustee may choose someone or become the monitor by default. Under s. 20 of the Representation Agreement Act, a monitor is directed to “make reasonable efforts to determine” that the representative is fulfilling the representative’s obligations to the adult.

With respect to health care decisions, a s. 7 agreement provides that only decisions regarding items defined as “major health care and minor health care” in the Health Care (Consent) and Care Facility (Admission) Act are permitted.

Major health care is defined in s. 1 of the Health Care (Consent) and Care Facility (Admission) Act as follows:

“major health care” means
(a) major surgery,
(b) any treatment involving a general anesthetic,
(c) major diagnostic or investigative procedures, or
(d) any health care designated by regulation as major health care;

Under s. 4 of the Health Care Consent Regulation, the following procedures are also designated as “major health care”: radiation therapy, intravenous chemotherapy, kidney dialysis, electroconvulsive therapy, and laser surgery.

Minor health care is defined in s. 1 of the Health Care (Consent) and Care Facility (Admission) Act as follows:

“minor health care” means any health care that is not major health care, and includes
(a) routine tests to determine if health care is necessary, and
(b) routine dental treatment that prevents or treats a condition or injury caused by disease or trauma, for example,
(i) cavity fillings and extractions done with or without a local anesthetic, and
(ii) oral hygiene inspections;

The representative in a s. 7 agreement is not authorized to make a decision to refuse life-supporting care or treatment (Representation Agreement Act, s. 7(2.1)).

s. 7 agreements can be prepared by a layperson without the help of a legal practitioner.

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s. 7 forms can be found here:

Nidus_Form_BasicRA7F+L-RA7Path.pdf

3898.2KB

ii) Non-standard Representation Agreement (Section 9)

Section 9 of the Representation Agreement Act provides for a broader agreement that enables an adult to grant the representative the power to, for example, refuse life-supporting care or treatment. A s. 9 agreement authorizes the representative to do anything the representative considers necessary in relation to the personal care or health of the adult, or to make any of the following decisions:

where the adult should live;

whether the adult should work;

whether the adult should participate in educational, social, vocational, or other activities;

who the adult should associate with;

whether the adult should apply for a licence, permit, or authorization;

day-to-day decisions about diet and dress;

giving or refusing consent for health care; and

physically restraining or moving the adult.

Representatives are not permitted to give consent for MAiD or refuse consent to the provision of professional services or treatment under the Mental Health Act, R.S.B.C. 1996, c. 288, if the adult is detained or on leave (s. 31).

C. Nomination of Committee

A “nomination of committee” allows adults to express their views to the court about who should be appointed to make financial and health care decisions on their behalf, if proceedings are brought under the Patients Property Act. A disabled beneficiary may wish to execute a nomination of committee in addition to a representation agreement for health care.

The capacity to nominate a committee is lower than the capacity to manage one’s affairs; the patient need only know what their wishes are.

D. Committeeship Proceedings

If the adult is incapable, any person may apply to court to be appointed committee. An individual, a trust company, or the Public Guardian and Trustee may be appointed committee of estate, but only an individual or the Public Guardian and Trustee may be appointed as committee of person. If a nomination of committee has been made, the court must appoint the nominee unless there is good and sufficient reason for refusing the appointment (Patients Property Act, s. 9).

The court can order a committee to post security when appointed. A nomination will often contain a statement that the nomination is without the requirement that the nominee post a bond. A committee may not be required if the incapable adult is being looked after by an attorney or representative or both.

E. Wills

A Will allows a disabled adult to specify who shall be the executor of his or her estates and who shall receive his or her property after his or her death. Section 36(1) of the BC Wills, Estates and Succession Act provides that “[a] person who is 16 years of age or older and who is mentally capable of doing so may make a will.”

The will-maker must have the requisite testamentary capacity. No person of unsound mind, who lacks testamentary capacity, is capable of making a valid will. Testamentary capacity is defined through the common law, not statute. The basic test is found in Banks v Goodfellow, (1870) LR 5 B 549 (QB) at para 569 [Goodfellow]. According to the Goodfellow case and subsequent decisions, to have testamentary capacity a will-maker must:

Understand the nature of the act of making a will and its effects;

Understand the extent of the property they are disposing;

Be able to comprehend and appreciate the claims to which they ought to give effect; and

Form an orderly desire as to the disposition of the property.

In Nassim v Nassim Estate, [2022] BCSC 402 at para 41 [Nassim], the courts also outline a more “modern” form of the Goodfellow test: "The testator must be sufficiently clear in his understandings and memory to know, on his own, and in a general way (1) the nature and extent of his property, (2) the persons who are the natural object of his bounty and (3) the testamentary provisions he is making; and he must moreover, be capable of (4) appreciating these factors in relation to each other, and (5) forming an orderly desire as to the disposition of his property…"

The relevant time for assessing capacity is when the will-maker gave instructions and when the will maker-executed the will.

The law presumes that a will-maker has the requisite capacity if a will was duly executed in accordance with the formal statutory requirements after being read over to a will-maker who appeared to understand it.

To determine if a disabled adult has the requisite testamentary capacity to make a will, some inquiries would be: determining whether the will-maker can understand the nature of the testamentary act (that they are making a will), can recall the property and can comprehend that they are excluding possible claimants under intestacy or through a wills variation claim. Delusions or partial insanity will not destroy testamentary capacity unless they directly affect testamentary capacity or influence the dispositions in the will.

6. Disability Resources

7. Disability Precedents

Letters

LT Client - enclose disability trust.docx

33.9KB

LT Ministry - send copy of disability trust deed.doc

60.5KB

LT Client - reporting on disability trust.docx

21.5KB

Documents

s. 7 Representation Agreement Precedent (Nidus Form).pdf

3898.2KB

s. 9 Representation Agreement Precedent

38.5KB

Enduring Power of Attorney Precedent

144.0KB

Nomination of Committee Precedent.doc

37.0KB

Will Precedent.doc

173.5KB

Discretionary Disability Trust Precedent.docx

59.4KB

Non-Discretionary Disability Trust Precedent.docx

67.4KB

Lifetime Benefit Trust Language for Will (Mary Hamilton, KC and Sadie Wetzel)

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Nicole Garton is president and co-founder of Heritage Trust.

Recognized by Best Lawyers in Canada for trusts and estates and family law, she previously chaired the Canadian Bar Association Wills and Trusts Subsection (Vancouver).

Contact Nicole by email or phone at (778) 742-5005 x216.

Heritage Trust is a leading non-deposit taking financial institution, regulated by the BC Financial Services Authority (BCFSA), a government agency of the Province of British Columbia. Heritage Trust offers caring and professional executor, trustee, power of attorney, committee, escrow and family office services to BC resident clients.

We welcome you to contact us.