Before RDSPs there were not a lot of options for Parents of disabled children to protect income they were saving for their child’s future, without having to pay a great deal of tax on it, as it grew.
The RDSP helps a great deal with this, however before the RDSP another way to dissipate the impact of a disabled person receiving a large inheritance which could cause large tax implications and worse a loss of services and programs (due to the change in their financial status) was a Henson Trust (a specialized version of the Absolute Discretionary Trust).
I was going to attempt to explain this one, but thanks to Mark over at the Blunt Bean Counter, he has a much better explanation with this one:
By Katy Basi
The RDSP is a much “simpler” (for lack of a better term) program to work with in terms of set up, but in some instances, the Henson Trust may be the only option available.
Note: Yes, this is a bit of a cheat on my part relying on other writers, but this has been sitting in my “To Do” list for a while. Please feel free to comment and ask questions, I will make sure I get some answers for you.
Also remember your loved one needs to have a Disability Tax Credit (DTC) for this as well. Evidently, I was mistaken, however, the ODSP is actually involved for Ontarians as well.
Thanks for the article.
One question that I have yet to see answered anywhere is timing. When can or should a Henson trust be created? Is it only at the time of death of the “donor”, i.e. as part of their will, or can this or should this be set up ahead of time?
If part of a will, how does one educate the executor of all the ins and outs and the responsibilities around this?
And if there is more than one will that tries to set up a Henson Trust, does it mean that since only one can exist, the second “donor” cannot set one up?
And a question raised in the article but not answered is what happens to the funds after the disabled beneficiary passes? How to plan for that? What are the tax implications, etc?
(I guess that is more than one question 😉