National Post article: How can an Ontario couple ensure their disabled son is taken care of after they die?

Planning for your own future is one thing. Planning for a child who may never be able to manage their own finances is something else entirely.

That’s the situation one Ontario couple is facing.

They’ve done what most people would consider “all the right things” — a will, savings, insurance, and government benefits, but they’re still unsure if their plan will fully support their son over the long term.

When a child relies on programs like ODSP, even good planning decisions can have unintended consequences if they’re not structured properly.

In this case, I review their strategy and highlight what’s working, what needs adjustment, and where they may be leaving money or flexibility on the table.

In this article, you’ll learn:

• Why a common assumption about Henson Trusts is often misunderstood
• What happens to government benefits as other income sources begin
• The impact of conservative investing on long-term income
• Potential gaps in this couple’s current plan
• A key timing decision that could significantly impact taxes later on

If you’re planning for a family member with a disability, the structure of your plan matters just as much as the amount you save.

CLICK THE LINK BELOW TO READ THE ARTICLE BY MARY TERESA BITTI:

How can an Ontario couple ensure their disabled son is taken care of after they die?

Financial Plan

Anthony & Chelsea are already doing a lot of things right to help provide for their son for life, including maximizing the RDSP contributions, applying for all the government programs, the life insurance policy, naming him as the survivor on Chelsea’s pension, the Henson Trust, and the estate planning they have done to split their estate between their 2 children.

Son is 28 years old. He will have several sources of income that will vary through his life.

From now until he is 60, his income is ODSP of about $17,000/year and income from his parents.

At age 60, he can start withdrawing from his RDSP. If they continue to maximize it by contributing $1,500/year and getting the grant of $3,500/year, plus they earn about 4%/year with GIC investments, they should have about $400,000. With only fixed income investments, they should withdraw only about 2.5%/year rising by inflation, which is about $10,000/year income. Considering it is 30 years from now, that is roughly the equivalent of $4,000/year today. This may seem surprisingly low with all the saving, but GIC interest is barely above inflation.

When Chelsea and Anthony both pass away in 30+ years (assuming average health and the second one to die), their son will get 60% of Chelsea’s pension and lose ODSP, but that should be an increase in income for him.

He should also get their life insurance of about $700,000 which should go into his Henson Trust. If it is invested in GICs averaging 4%/year again, that is an additional $17,500/year. Considering it is likely 30 years from now, that should buy what about $7,000/year buys now.

The son turning 60 and the parents passing away leaving the pension and insurance may all happen about 30 years from now.

In today’s dollars, his income 30 years from now should increase by the equivalent of $4,000/year from the RDSP and $7,000/year from the life insurance, both in today’s dollars, plus the extra proceeds from the pension which could be $20-40,000/year, plus OAS of $9,000/year. This is a total of about $40,000-60,000/year, or $3,500-$5,000/month.

“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?”

Yes, a Henson Trust (an absolute discretionary trust) remains one of the best tools in Ontario for families in this situation. It allows you to leave an unlimited inheritance without it counting as an asset for ODSP eligibility, which means the trust’s full value (even if millions) won’t disqualify him from ODSP or other supports. This is because the trustees have complete discretion over distributions; your son has no legal right to demand funds, so the assets aren’t “his” under ODSP rules.

The $10,000 limit is a common misconception. It’s not a hard cap on total withdrawals but rather the annual exemption for non-disability-related expenses (e.g., gifts, entertainment, or general living costs). Unlimited distributions are allowed for approved disability-related items or services without affecting ODSP, such as personal support workers, medical equipment, therapy, transportation, modifications to a retirement residence, or even rent if tied to accessibility needs. Trustees can pay these directly to providers to avoid counting as income.

In their case, the Henson Trust would be for the half of their estate their son would get plus the life insurance policy. A reliable long-term withdrawal from a $700,000 life insurance policy invested in GICs is about $17,500/year rising by inflation. That is not a lot more than the $10,000 limit on non-disability expenses, so the $10,000 limit may not be a problem.

A Henson Trust requires annual work. Trustees must file annual reports to ODSP documenting transactions. Poor management could lead to overpayments or clawbacks. Also, after 21 years, undistributed income must be paid out annually, but this is manageable with good planning and tax-efficient investments.

Anthony and Chelsea also appreciate that when their child starts receiving Chelsea’s pension, ODSP payments will be completely clawed back. Is there a way to ensure he can access the money that is being saved for his future and maintain government assistance? 

Chelsea’s pension will likely eliminate the ODSP income, since it is income and will trigger the dollar-for-dollar clawback. However, the pension only starts once both Chelsea and Anthony are gone, which is likely 30+ years from now if they are average health. Their son should get ODSP until then.

They might be able to qualify for partial ODSP in some cases, such as if living costs are high, but under current rules, the rest of the ODSP will be lost.

OAS should start for their son when he is 65, which is likely about the time he may get the pension. OAS would likely already clawback more than half of the ODSP.

Essentially this means that their son should get the ODSP income or the pension, whichever is higher, for life.

While their son, who is 28, will continue to live with his parents until they die, Anthony and Chelsea anticipate he will likely move to a retirement residence, and want to make sure he can afford to live comfortably.

Retirement homes that accommodate major disabilities are expensive, so they should plan to make sure there will be enough money. Today in Ontario, they can cost $5,000-$8,000/month or more, especially if additional services are necessary.

The ODSP pays $1,408/month (almost $17,000/year) for a single person. There is a shelter allowance up to about $600/month, but usually this does not apply for retirement homes.

In today’s dollars, his income 30 years from now should increase by the equivalent of $4,000/year from the RDSP and $7,000/year from the life insurance, both in today’s dollars, plus the extra proceeds from the pension which could be $20-40,000/year, plus OAS of $9,000/year. This is a total of about $40,000-60,000/year, or $3,500-$5,000/month.

All this leaves him very tight to pay for a retirement home of $5,000-$8,000/month. He should be able to get a basic retirement home for $3,500-$5,000/month.

RDSPs are ideal for long-term investing and is designed for it. You contribute to age 49 and do not start withdrawing anything until age 60. Therefore, investing for more growth could be a very good fit. Investing in a balanced or growth portfolio would require advice for them, since it would be a significant change from GICs, but it should be able to increase their son’s income to $5,000-$6,500/month, which should be enough for a decent retirement home. If a principal guarantee is important to them, they could invest in balanced or growth investments with segregated funds.

Their son’s income would be higher both because of a larger portfolio and being able to reliably withdraw more, which is why they should be able to increase their son’s income for life by $1,500/month in today’s dollars rising by inflation. If they invest the RDSP in a balanced portfolio, it should grow to about $800,000 instead of just $400,000 in 30 years. An equity portfolio should give them about $1.2 million. They should also be able to reliably withdraw 4%/year from both the RDSP and the insurance proceeds, instead of just 2.5%/year.

To make sure they are preserving as much of their capital as possible for both their children when they inherit the estate, the couple would also like advice on the most tax-effective strategy to withdraw money from their RRSPs, which are fully invested in Guaranteed Investment Certificates. Their plan is to reinvest what they withdraw into unregistered GICs and take the tax hit knowing they are in a low tax bracket, as opposed to waiting until our deaths and our sons having to pay estate taxes at a substantially higher tax rate. Is this the right approach?

Possibly, but it is too soon. Their remaining RRSPs or RRIFs when they both pass away will be fully taxed. The amount over $258,000 is taxed at 54% (more than half!) Today, their marginal tax bracket on their first $58,000 of taxable income each ($108,000 total) is only taxed at 19%. That’s a lot less if you compare paying tax on $10,000 of income of $1,900 today vs $5,400 in 30 years.

However, they would have to pay $1,900 in tax now. If it stayed in their RRSP for 30 years and grew at 4%/year, it should grow to $6,200. That means paying $1,900 now and removing it from their investments costs them more than paying $5,400 in 30 years!

In addition, the GIC interest on the non-registered GICs they would buy would also be taxable every year.

Their best strategy would be to start at about age 75-80. At that time, they should each withdraw as much as they can while staying in the lowest tax bracket by keeping both of their taxable incomes below $58,000/year.

Ed