Parents obviously offer the support they can when an adult child has a serious illness. But estate planning for the child may be more difficult if the illness is unpredictable. Nicole Ewing, VP, Tax and Estate Planner, TD Wealth, talks about the best way to plan for what you can’t foresee.
- Estate planning can be a stressful exercise at the best of times. It's even more stressful if a parent has to consider how to care for a child with a disability or a potentially costly illness. I spoke earlier with Nicole Ewing-- she's Vice President of Tax and Estate Planning at TD Wealth-- about how to handle that issue. And I asked her to start by telling us about some of the family situations that she's encountered.
- When you're talking about disabilities, oftentimes we're thinking of it in terms of black and white. Either you have a disability or don't. Your child is disabled, or they're not.
- Or they're incapacitated, or they're not.
- And that's just not necessarily the way things work. So if we think about things like mental health issues-- I had a couple speaking with me, and they had just recently-- their son had been diagnosed with bipolar. They're tremendously relieved because it answered a lot of questions that they'd had. And they were looking forward to having a plan in place, a treatment plan that would allow them all to have a healthier life.
But that brought to light some of the questions that they had in terms of how do they leave assets to him. He may or may not-- the treatment may or may not be successful. It may be stabilized, or it might not be. And so when we think about how to plan, we need to think about the actual beneficiary that we're talking about.
They may have health issues like MS, for example, or dementia, or cancer. And none of these are black and white. You have better days than others. You may have-- it's not necessarily a straight decline. We can either be healthy or not, depending on where we're at a particular time. And so when we're thinking about estate planning, we need to have that broader point of view of, yes, my child has a disability, but what does that mean for them in their particular circumstances.
- Now, I know a lot of this is going to be situational in terms of how you deal with it. But in terms of when you think about your will and estate planning, where do you start?
- Well, if you've done an RDSP, presumably during life-- but one of the big questions is how to provide for your child. If I'm not here, who's going to-- where's the money going to come from? And so insurance might be something that you're looking at, making sure that there's going to be assets available for your child. You'll be thinking about having a trust, maybe naming-- if they're minors, naming the guardian for them, thinking about the sorts of assets that they're going to need, the sorts of protections they might need. And so things like a Henson trust, for example, might come to mind.
- What's a Henson trust?
- So a Henson trust is-- essentially, it's named after a court decision where Henson was the name. But what it really is is a fully discretionary trust where the assets don't vest in the individual. And the reason this is important is because many individuals who are disabled are on government assistance. And so not necessarily just the funds, but access to certain programs depends on-- there's asset tests and income tests. And so if you're a beneficiary of a trust, you may inadvertently be put offside even if you're not actually receiving those assets.
So if you are a potential beneficiary, that might be-- those assets might be included for the purpose of determining whether or not you're actually able to receive the government assistance. So Henson trusts are designed in a way where it's giving the trustee complete discretion to determine if, when, and how those assets are passed on to the beneficiary.
- So interesting, I think, again-- again, so much depends on the assistance, the things that you're getting. Tell me a bit about the situation where you have people who may be also in or out of illness. And I'm sure I'm not referring to that right, but they're having the good days and the bad days. So how does that apply with the Henson trust?
- Oftentimes I see wills that are drafted, and they're very static. And you either have a Henson trust or you don't. I really encourage both lawyers and individuals who are having their wills done to think more broadly and to incorporate in those documents flexibility so that we're giving the trustee the ability to-- maybe it makes sense to blow up the trust. Maybe the individual is healthy, and they're in a great place, and we're thinking that they probably won't need that government assistance, or that the funds they might receive from the trust are more valuable in their particular circumstances.
So giving that authority and that flexibility-- it might even be not necessarily having the rules in place, but a letter that you've written to the trustees letting them know what your wishes are, how you want your child to be provided for, and the sorts of values that you want to bring to the table-- so having, I think, flexible approach to planning and contemplating some of the ifs.
- You mentioned-- I know we were talking earlier about this too-- you think it's important for-- the person who is the beneficiary of the Henson trust should have their own legal affairs in order as well.
- Well, exactly. So again, we're not talking about black and white scenarios. So if somebody has capacity-- they may be a disabled beneficiary with capacity to do their own planning and their own documents. So certainly when people are healthy and capable, they should be having their own powers of attorney in place, their own wills in place, and making sure that those are coordinated with the other documents, the other plans for them.
- A lot of this is-- it's overwhelming to have children. It's overwhelming to have children with disabilities. A lot of this can just be a lot. So where does someone start with all this? So if you say, OK, I want to start putting things in place, where do you go?
- I would suggest your financial advisors and your lawyers are going to be able to really offer you some great guidance here. There's a lot of different planning approaches that you can take, and there's no cookie-cutter approach to this. So your financial advisor is going to be able to speak to you about options like insurance, and RDSPs, and trusts, and how those all would work together. So I'd be seeking the assistance of my advisors, both legal and financial, to coordinate together a great plan.
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