Planning around a Disabled Child

There are thousands of families in Canada that care for and support children with physical or developmental disabilities. It is important that parents consider their options for the ongoing care and support of their disabled children should they become unable to do so in the future. This article explores some of the options available to parents and important considerations relating to those options.

Guardianship of a Disabled Minor Child

Parents of a disabled minor child should make a plan in the event of death or incapacity. If one or both parents dies, it is important that the parent(s)’ will(s) appoint a guardian(s) for the disabled minor child and a trustee to manage the finances for that child. Many parents fail to realize that the government steps in and takes legal responsibility for the child if there is no guardian in place.

If one or both parents become incapacitated, it is important that the parents(s) have a valid Representation Agreements (“RA”) in place that appoints an adult Representative to make all medical and personal care decisions for the parent(s), including making arrangements for the temporary care, education and financial support of any minor children until permanent arrangements can be made.

Parents should also consider preparing a detailed memorandum or letter of wishes relating to the child’s care and upbringing. This letter should include important information relating to the child, such as his/her treatment plan, prescription plan or drug information, contact information for medical professionals, support group information and care service providers. The letter should also include the parent’s wishes and guidance relating to their child’s future care, treatment, and up-bringing. For example, does the parent wish for the guardian to pursue alternative medical treatment when the child is older? Do they wish for the guardian to enroll the child in a special school or to participate in a special program? What type of housing situation is realistic for the child when they reach the age of majority given the financial resources available for the child’s long-term care? Parents can record this information in a memorandum or letter of wishes that they can update over time as information or preferences change.

Legal Representative of a Disabled Adult Child with Physical Disability

Once a disabled child becomes an adult, different legal options or tools are available depending on the nature of the child’s disability. If the adult child has a physical disability, but is mentally capable, then any authority that the parents may have had over the child as a minor does not continue once the child reaches the age of majority (19 in British Columbia). If the adult child still requires assistance managing his/her affairs (i.e. for reasons of impaired mobility), the adult child may wish to appoint his/her parents, siblings or other trusted individuals with a Power of Attorney to manage his/her financial and legal affairs. The attorney(s) can then assist the individual with matters such as banking, filing tax returns, or land title/housing matters. Practical options for appointment would include a family member or close friend. If the child does not have family or friend suitable for the role, they can appoint a professional, such as a lawyer, trust company or the Public Guardian and Trustee. The adult child may also want to appoint one or more Representatives in an RA (section 9) to make all medical care and personal care decisions for the adult in the event they are incapable of doing so by reason of illness, accident, or otherwise.

Legal Representative of a Disabled Adult Child with Limited Competency

Where an individual has lower mental competency, they are usually unable to give a Power of Attorney to another person because they are unable to meet the requisite legal capacity test. They may also be unable to make a s. 9 RA, unless they can “understand the nature and consequences of the proposed agreement”. The individual’s options would be limited to giving another person more routine decision-making power through a section 7 RA.

The following factors are considered in deciding whether an individual can make a s. 7 RA:

(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.

Assuming the adult child can meet the capacity requirements, his/her s. 7 Representative can manage the individual’s routine financial, legal and medical affairs. This would include managing the individual’s personal care, health care and day-to-day financial needs. A s. 7 Representative cannot make more advanced or significant decisions, such as acting on behalf of the individual to complete a real estate transaction, deciding to remove the individual from life support, or completing their divorce.

An appointment of a Monitor is required to supervise the authority of the Representative and ensure that the Representative is acting in good faith.

If the Representative finds they are lacking important powers that are required to assist the adult child, then they would need to apply to the court to be appointed the individual’s Committee. A Committeeship appointment gives the Representative broad ranging powers to govern all of the individual’s medical, legal and financial affairs. For this reason, the process can be long and costly and the court may require certain protections be put in place to protect the individual (such as bonding, a form of insurance).

Legal Representative for a Disabled Adult Child with No Competency

The threshold required to make a s. 7 RA may be too high for some disabled adult children. If they are incapable of making a s. 7 RA then the only option is for their family member to pursue an appointment as their Committee. If there are no living family members or friends willing to take on this responsibility, then the Public Guardian and Trustee would step in to act to ensure there is a legal representative to manage the child’s affairs.

Financial Planning for a Disabled Child

When arranging a financial plan for a disabled child, it is important to first consider the existing financial circumstances of that child. It could be that the disabled child receives either government or privately funded disability benefits. In that case, the disabled child’s ongoing entitlement to such benefits depends on meeting certain income and asset requirements. Family members planning to provide gifts directly to the disabled child should do so with caution, as the gifts may increase the child’s income or asset ownership to a level that will disqualify him/her from receiving benefits going forward.

However, there are approved ways in which to make provision for a disabled child that should not impact his/her disability benefits. Depending on the requirements of his/her benefits package, certain assets may be exempt the calculation of maximum allowed assets. For example, most benefits permit a disabled person to own his/her principle residence, a car, equipment related to assisting with his/her disability, and more. Therefore, purchasing any exempt assets on behalf of the disabled child may avoid issues with his/her disability benefits. A parent may also establish and make contributions to a Registered Disability Savings Plan (“RDSP”). Funds in an RDSP can be used for the disabled child’s benefit and the income is usually excluded by the benefits provider when assessing the disabled child’s income for qualification purposes.

There are limits as to how much money can be contributed to an RDSP annually. Parents who have more significant means at their disposal may wish to provide for their child’s long-term care and support through an inter vivos (made during lifetime) or testamentary (arises on death) trust. A discretionary trust settled for the benefit of a disabled child is often referred to as a “Henson Trust”, and can arise either during lifetime or on the death of the person wishing to settle the trust. A disability trust arising in a will may enjoy lower tax rates if it meets the requirements of a “Qualified Disability Trust” under the Income Tax Act.

A trust is considered to be a separate legal entity whereby assets in the trust are owned by the trust and not by the child personally. Most benefit providers (private or government) do not consider assets held in a discretionary trust for the benefit of the child to be an asset of the child, and thus the assets in the trust are not taken into account in determining the individual’s assets for qualification purposes. So long as someone other than the beneficiary acts as the trustee of the discretionary trust and has the absolute discretion to decide what if any amounts of income or capital to advance to the beneficiary, the trust is considered “discretionary” and the assets in the trust do not belong to the beneficiary.

A trustee needs to be appointed in order to manage and control the trust assets. Similar to the other appointments suggested above, the trustee can be a family member or friend. If those options are not available or not suitable, the trustee can be a professional, such as a lawyer or trust company. The person settling the trust (known as the settlor) should avoid naming themselves as trustee, as it could then retain the tax liability in the settlor’s hands rather than in the hands of the trust. In creating the trust, the settlor would transfer funds to the trustee to hold pursuant to the provisions of the trust. For disabled beneficiaries, it is recommended that the settlor give absolute discretion to the trustee to determine how much, if any, of the income or capital of the trust fund is distributed to the disabled child. The trustee should also seek to make payment directly to third parties, rather than into the hands of the disabled beneficiary (where it may be considered income or assets). The trustee must be careful not to exceed the disabled beneficiary’s allowed asset and income limits.

Making a plan for a disabled child is an important first step. Before establishing a plan, it is important to seek advice from a qualified legal professional. Every family’s situation is unique and requires careful planning and consideration.