DISCRETIONARY TRUSTS - A GUIDE FOR FAMILIES

Delta Community Living Foundation

The information provided here is intended to help you make an informed decision about providing for your child's future, and to suggest ways that the Delta Community Living Foundation can help. It is not intended as legal advice, for which we recommend that you seek qualified professional services.

We have always been there to make sure her needs were met, but what will happen when we are gone?

As parents of a person with an intellectual disability, you are faced with difficult decisions in planning for the long-term financial security of your child.

The future is uncertain. As your child grows older, the costs of providing adequate living conditions and especially health care will probably escalate. How much support will be available from government funding is uncertain. No one knows what future policy will be.

Can I protect my child by naming him or her as the beneficiary of my estate in my will?

Your questions are not readily answered by standard estate planning. If you leave all or part of your estate to your son or daughter, he or she will not qualify for GAIN income. Moreover, there is a significant risk that means testing will be introduced for government-funded services. This means that the money you leave your child will be spent before he or she can receive government support. Even a large estate could be depleted in a relatively short time for an individual with high needs, so that your child could be left with no long-term protection.

Can I leave my assets to my other children on the understanding that they will provide for their sibling with a disability as needed?

No. Under the Wills Variation Act, the public trustee would challenge any estate that did not provide fairly for a child with an intellectual disability.

What other options do I have?

You may wish to consider the option of creating a discretionary trust. There are many advantages to doing so.

What is a discretionary trust?

Here is how a discretionary trust works:

• Your son or daughter with an intellectual disability is the Beneficiary of the trust. This means that the trust funds are intended strictly for his or her use. However, because the beneficiary does not have discretion over the funds, he or she is not considered to be the legal owner of the funds and will not be penalized in the event of means testing for government-funded services.
• You become the "Settlor" of the trust. The Settlor is the benefactor who establishes the trust and endows it either during his or her lifetime, or as a bequest at the time of death. The Settlor determines the guidelines for the discretionary trust and designates the Trustee.
• The Trustee (DCLF or another qualified person or organization) becomes the administrator of the trust. The Trustee has full discretion as well as fiduciary responsibility for the prudent administration of the trust and for the disbursement of funds in accordance with the terms of the trust agreement.

How can DCLF help?

You can establish a Discretionary Trust for the benefit of your son or daughter under the trusteeship of the Delta Community Living Foundation.

Whereas most institutions that are qualified to act as a trustee impose high initial capital requirements on discretionary trusts, DCLF is prepared to administer discretionary trusts on behalf of its members for nominal amounts.

How would the discretionary trust operate?

As Trustee, DCLF would assume sole discretion for the trust's administration. An Audit Committee composed of DCLF Board members would be established to monitor the management of the trust in accordance with their responsibilities under the Trustees Act.

For each trust agreement entered into between DCLF and a trust Settlor, a separate bank account (in trust for the Beneficiary) will be opened. Statements of trust assets and disbursements will be provided to the DCLF Trust Audit Committee and to the Settlor who established the Trust.

DCLF is prepared to act as Trustee of a discretionary Trust only under the following conditions:

• DCLF must be named as sole Trustee. DCLF will accept advice from family members and others who are responsible for the care of the Trust beneficiary, but will exercise sole discretion in respect to disbursement of Trust funds.
• Administration of the Trust must be consistent with a conservative interpretation of the Trustee Act.

What are the costs associated with a discretionary trust?

Legal fees associated with establishing and registering the Trust are based on the time your lawyer spends drawing up the documents. We recommend that you work with a lawyer who is experienced in the area of discretionary trusts, as this expertise will save time and help ensure that all the issues relevant to your family situation are addressed.

The fees charged by DCLF to establish the Trust are 2% of the initial capital value of the trust, subject to a minimum fee of $250 and a maximum of $1000.

Administration fees charged by DCLF are set at 1% per annum of the remaining asset value of the Trust.

Fees for the professional investment management of the Trust assets are paid by DCLF on behalf of the Trust out of the above-mentioned 1% annual administration fees.

What happens to any assets remaining in the Trust after the Beneficiary's death?

As Settlor, you may, in the terms of the trust agreement, instruct DCLF to disburse any remaining funds according to your wishes. If the funds are left with DCLF, they will be used to continue to provide for the needs of people with intellectual disabilities.