This guide provides information about Support Trusts. DISCLAIMER:

Transcription

1 Support Trust Guide

2 This guide provides information about Support Trusts. DISCLAIMER: The Newfoundland and Labrador Association for Community Living (NLACL) has prepared this Guide for informational purposes only. It is not to be interpreted as offering legal advice of any kind and all questions of a legal nature should be directed to a qualified lawyer. To the best of our knowledge, the information contained in this Guide is accurate as of October 25, However, laws, regulations and policies are subject to change from time to time. 2

3 Contents 4 Introduction 5 Estate Planning 6 What is a Trust? 8 What is a Support Trust and Who Qualifies? 10 How Can Support Trust Funds be Used? 11 Government-funded supportive services 12 What are a Trustee s Duties? 13 How are Trustees Chosen? 14 Conflict of Interest Concerns 14 Why Establish a Support Trust? 16 The Lawyer s Role 17 The Tax Specialist s Role 17 How Can Others Be Asked to Help? 18 Conclusion 18 Glossary of Terms 3

4 SUPPORT Introduction T he objective of this Guide is to provide general knowledge about support trusts in the Province of Newfoundland and Labrador. It is intended to offer information to families and professionals so they can work together to set up effective support trusts for individuals with disabilities. Many people with disabilities rely on government-funded supportive services such as income support and other disability related benefits to satisfy basic needs. The level of income support is often low in comparison to the cost associated with having some disabilities. Many persons with disabilities have difficulty accessing the job market. They often require additional financial assistance if they wish to live in the community and avail of goods and services that are not otherwise covered by government. Finding a way of providing this financial assistance without negatively affecting existing government benefits is an essential step. Appropriate estate planning, including the use of support trusts, is one of several tools families can avail of to achieve these goals. >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> > 4

5 SUPPORT >> What is Estate Planning? Generally speaking, estate planning allows individuals to plan how they wish to distribute or hold their property, also known as assets. Estate planning is done during a person s lifetime and can operate while that person is alive and/or upon his or her death. For those individuals and families wanting to ensure a person with a disability is adequately provided for financially, setting up a trust is a form of estate planning that can effectively facilitate this objective. 5

6 SUPPORT What is a Trust? A trust is established when property or assets are transferred by an individual (a settlor), to a named trustee, for the benefit of a named beneficiary. A trust establishes a relationship between three parties: the settlor who creates the trust and transfers property to the trust; the trustee who holds the trust property for the benefit of the beneficiary and whose duty it is to carry out the terms of the trust; and, the beneficiary for whose benefit the trust has been established. Trusts are created in a document, sometimes called a trust agreement, that can take effect during the lifetime of the settlor (an inter vivos or living trust) or through the provisions of a person s Last Will and Testament (a testamentary trust).the settlor transfers property (real or personal) to the trustee to be used for the benefit of the beneficiary. There can be multiple settlors, trustees and beneficiaries involved in a single trust. >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> > 6

7 SUPPORT Once property is transferred to the trust, it is referred to as trust property. The trustee holds legal title to the trust property and the beneficiary holds equitable title. Any trust monies would normally be kept in a bank account or an investment account. Local banks and credit unions can provide clarity on their informational requirements to set up a trust. There are two types of trusts, a discretionary trust and a non-discretionary trust. Discretionary trusts, sometimes called Henson Trusts, give a trustee full discretion in how he/she uses the property and for what purpose. In fact, under a true discretionary trust, the trustee is not required to use or encroach on the trust property at all. However, if the trustee decides to use the trust property, it must be used for the benefit of the beneficiary pursuant to the provisions of the trust agreement or Last Will and Testament. Discretionary trusts will not be dealt with in this Guide but they can be a very helpful estate planning tool. Further information about discretionary trusts >>> >>> >>> >>> >>> >>>they >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> > and>>>when should be>>>used can be obtained from a lawyer. The second type of trust is called a non-discretionary trust. Nondiscretionary trusts may also be referred to as limited discretionary trusts because the trustee is required to use the trust property in a particular way for the beneficiary s benefit. Support trusts, which are the focus of this Guide and discussed in detail below, are a form of non-discretionary or limited discretionary trusts. The definitions of various terms associated with trusts can be found in the Canadian Law Dictionary by John A. Yogis. 7

8 SUPPORT What is Support Trust and Who Qualifies? As noted above, a support trust is a form of non-discretionary, or limited discretionary, trust fund. In Newfoundland and Labrador, support trusts are authorized by legislation called the Income and Employment Support Act, S.N.L. 2002, c. I-0.1(the Act ) and the Income and Employment Support Regulations, Regulation 144/04 (the Regulations ). They are also governed by the Income and Employment Support Policy and Procedure Manual (the Manual ). A support trust is based on the idea of supporting persons with disabilities living in their own homes and communities. The purpose of a support trust is to provide families and individuals, who often act as the settlors of the support trust, with a vehicle to contribute to the day-to-day costs of a person with a disability not covered by government-funded supportive services. Supportive services include income support to assist with purchasing food and clothing, personal care, household maintenance and utilities, as well as other disability-related supports such as assistive devices. Contributions to a support trust which are used for the benefit of the person with a disability, the beneficiary, do not affect the person s eligibility for those government benefits. Under the legislation and policy, there are a number of rules which apply to support trusts: 1. A support trust can only be established for a beneficiary who is at least 18 years of age; 2. The beneficiary must require government-funded supportive services. A person requiring supportive services is defined in the Regulations as someone who needs supportive services to help with daily living; 3. Support trusts can only hold up to $100,000 in liquid assets (i.e. money) at any given time, 4. The trustee of a support trust must use at least 2% of the capital and 100% of the interest from the support trust each year for the benefit of the beneficiary; and, 8 5. All monies in a support trust are protected provided the beneficiary is living in the community.

9 SUPPORT A support trust can be used to protect government-funded supportive services when planning for gifts and inheritances from extended family or friends, as well as other transfers of property. The $100,000 exemption limit can be achieved through numerous contributions as long as the trust monies never exceed $100,000 at any given time. For example, multiple contributions could replenish support trust funds as they are used for the benefit of the beneficiary. There is no lifetime contribution limit. The $100,000 exemption limit for support trusts is in addition to the maximum liquid assets limitations (i.e. $3,000 for an individual) set out in the Regulations. However, if the total liquid assets in the support trust exceed $100,000, all funds can be considered in determining whether the beneficiary is eligible for supportive services. Similarly, if all interest plus at least 2% of the capital is not used annually, the interest and 2% of the capital will be considered in assessing the beneficiary s eligibility for supportive services. In many cases, it will be deducted from income support benefits. The only exception to this spending requirement is if the total liquid assets in the support trust remain equal to or less than the personal exemption of $3,000 described above. More specifically, if a support trust for an individual is equal to or less than $3,000, there is no requirement to spend any of the funds. If a beneficiary moves from his or her own home to, or is living in, a personal/ community care home, the support trust exemption is reduced from $100,000 to $25,000. If the person moves to, or is living in a nursing home, the exemption does not apply. Special care should be paid to protect finances should the individual plan a move to one of these places. >> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> 9

10 SUPPORT How Can Support Trust Funds be Used? Under the Act and Regulations, a minimum of 2% of the capital in the support trust plus 100% of the interest must be used by the trustee to enhance the wellbeing of the beneficiary each year. The trust remains in force for the period of time established in the trust document or until the funds are exhausted. Since the intention of a support trust is to provide services and items to a person in addition to those funded by the government, it is advisable for a trustee to make sure that the particular item or expense being considered is not something the government will provide. Outside of this precaution, a trustee is usually left with much discretion in determining appropriate expenditures. In some cases, the family member with a disability can have a say or input in the decision-making process. Some examples of things support trust funds can be used for are: Visits with relatives; Travel; Recreation or extracurricular activities; and, Clothing, etc. If there are any questions about whether a particular expense is allowable, the beneficiary s Client Services Officer or other appropriate authority should be consulted. This will help to avoid any problems and any potential effect on supportive services. 10

11 SUPPORT > >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> Are Government-funded supportive services affected or diminished if someone is the beneficiary of a Support Trust? Provided that the terms of the support trust comply with the requirements of the Act and Regulations, government-funded supportive services are not affected. More specifically, the funds cannot exceed $100,000 and a minimum of 2% of the capital of the support trust plus 100% of the annual interest earned must be spent every year to purchase items or services for the beneficiary. Support trust funds are not considered in any disability benefits assessment. For other types of disability benefits (Canada Pension Plan (CPP), Workplace Health, Safety and Compensation Benefits, private long-term disability benefits, etc.), there may be restrictions placed on what the beneficiary can receive from the support trust. This should be checked with these sources. As stated previously, care must also be given to the reductions in the $100,000 exemption limit in the event the beneficiary is living in a personal/community care home or nursing home. 11

12 SUPPORT What are a Trustee s Duties? The trustee must keep the trust property separate from the trustee s own property. For this reason, the trustee must establish a separate account for any money to be held in trust. A trustee must administer the support trust in accordance with the terms of the trust agreement or Last Will and Testament. The trustee has a fiduciary obligation to the beneficiary and must act in the beneficiary s best interest. In addition, the trustee must also keep detailed records of the trust. More specifically, trustees are required to do as follows: Follow the terms of the trust agreement; Keep accurate and detailed records of the trust annually, including the capital balance at the beginning of each year as well as the interest or income; Keep accurate and detailed records of all expenditures made from the trust; File appropriate tax returns on behalf of the trust annually; and, File all required documents with governmental authorities as necessary. It is also important to retain all correspondence made with the beneficiary s Client Services Officer or other authority regarding any inquiries related to eligible expenses in order to ensure records are complete. 12

13 SUPPORT How are Trustees Chosen? The settlor of the support trust chooses who he/she/they wish to be the trustee or trustees. Choosing an appropriate trustee is an important planning decision. Ideally, trustees should have the following traits: A personal interest and a respect for the beneficiary; An ability to understand the terms of the testamentary trust or inter vivos/living trust; A basic knowledge of investment practices in order to invest the trust funds wisely or to consult with a professional investment advisor as needed; Excellent organization skills so as to keep proper accounts and records respecting administration of the support trust; A willingness to become familiar with the income support and disability benefits system in Newfoundland and Labrador from which the beneficiary is receiving benefits; and, Trustworthiness. A settlor can name single or multiple trustees. The trustees can be individuals or corporate trustees, or any combination thereof. However, it is helpful if a family interested in setting up a support trust understands basic trustee responsibilities and roles in order to determine whether a potential trustee has the ability to perform the necessary administrative functions such as keeping proper accounts and records, filing tax returns and so on. In addition, trusts for beneficiaries with disabilities may need to be in existence for a considerable length of time so the age of the prospective individual trustee(s) should be considered. Families may also want to consider naming an alternate or replacement trustee in case an initial trustee is unable to fulfil his/her responsibilities before the trust is terminated. Corporate trustees often have expertise in trust management and administration and are also likely to be available for the length of time that the trust is in place. However, corporate trustees sometimes require a minimum value of trust property. If finances allow, some families setting up a support trust could consider appointing a corporate trustee as a co-trustee with an individual who is close to their family member with a disability. 13

14 SUPPORT What Are Conflict of Interest Concerns For Families Selecting Trustees? A potential conflict of interest can arise when a trustee or trustees are designated as an ultimate beneficiary of the support trust. This means that upon the beneficiary s death or at the time the trust terminates, the trustee holds an interest in the remaining trust property. A similar situation may occur if the trustee s children are named the ultimate beneficiaries. These situations could create a motive not to use the support trust funds to the full benefit of the person with the disability for whom the support trust was created. In many cases, this is a difficult problem to solve as families are often limited in their ability to choose willing, dedicated and capable persons to act as trustees. While in some cases these potential conflicts of interest are unavoidable, families need to be aware that they exist and should play a role when choosing trustees. >> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> > 14 Why Establish a Support Trust? Many families with members who require government assistance and who are currently receiving supportive services have expressed concern about planning for the future. Families have strong reasons to worry about what will happen when they are no longer able to provide needed supports as they have previously done. While the supports provided by government are separate from this issue, other support and financial aid provided by families may not be easily replaced. Families will need to consider and may be concerned about some of the following questions:

15 Why Establish a Support Trust? continued SUPPORT What kind of life and standard of living they want their family member to have and, from a planning perspective, what can they do to make this happen? How can the family member s entitlement to government benefits and services be protected and enhanced? What is the best way to ensure a home is provided and maintained for their family member with a disability? How can families balance the financial needs of a family member with a disability with those of other family members? What is a fair distribution of estate assets? Should a family member with a disability receive a larger share of estate assets? Who might contribute to support trust if established? An important objective of support trusts is that they can be created by families to encourage and support individuals with disabilities to live in the community. Without such financial support, the ability of the family member to live in the community may be at risk. For families with this objective in mind, support trusts provide a number of important benefits. These include: A way to supplement an individual s income while protecting entitlement to government-funded supportive services; A relatively quick way to protect government- funded supportive services in the event the person with a disability receives financial gifts, inheritances or settlements that could affect benefits; A named vehicle for extended family and friends to contribute to the future well-being of the person with a disability; A way to manage assets in circumstances where individuals are unable to manage their own financial affairs without support; In some cases, a way for the person with a disability identified as the beneficiary to be part of the decision-making process in the administration of the support trust; and, A flexible route to plan for changes in the future needs of a person with a disability, depending on the terms of the trust. However, as mentioned previously, families need to be aware that the $100,000 exemption referenced above is reduced or can be eliminated should the beneficiary move to a personal care or nursing home. It is important to plan for these possibilities. There are other options available for protecting trust property in such circumstances. These should be explored with a lawyer and/or financial planner if there are concerns. 15

16 SUPPORT What is a Lawyer s Role in Assisting Families in Creating Support Trusts? It is important to know that in establishing a support trust, a legally binding, contractual relationship between the settlor, trustee and beneficiary is created. This relationship brings with it legal obligations and consequences which will need to be fully explained. Therefore, it is strongly recommended a lawyer be retained to assist and advise on the implications of a support trust. The first thing which should be discussed with a lawyer is the cost of establishing a support trust. Depending on the complexity, it should not be costly. Secondly, it is helpful to have answers to the following questions before the first meeting with a lawyer. However, any difficulties should not discourage families in their effort to move forward. These questions can certainly be addressed at the relevant time. 1) Will the support trust be set up within a Last Will and Testament as a testamentary trust or as an inter vivos/living trust? 2) Who is/are the settlor(s)? 3) Who is/are the trustee(s)? 4) Who is the beneficiary? 5) Is there proof from an approved professional that the beneficiary is someone requiring supportive services? 6) What is the name of the trust fund? 7) Which is the name of the financial institution where the trust fund will be set up? 16

17 SUPPORT What is a Tax Specialist s Role in Assisting Families in Creating Support Trusts? In addition to the legalities of trusts, there are also tax considerations associated with both inter vivos/ living trusts and testamentary trusts which need to be explained to families. For these reasons, it is advisable that families interested in setting up support trusts speak with a tax specialist in advance. > >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> > >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> How Can Others Be Asked to Help? Once a support trust is created and in particular, if the support trust is set up as an inter vivos/ living trust, other persons who may be interested in contributing should be notified. However, the limitations on support trusts as explained above must be taken into account. It would be most unfortunate if a well-intentioned person left a sum of money to a support trust under the terms of a Last Will and Testament when the maximum allowable exemption has already been reached. In cases like this, it is possible to use other estate planning tools such as a Registered Disability Savings Plan (RDSP) or a discretionary trust (Henson trust). The advice of a lawyer and financial planner would be required to establish a Henson Trust. 17

18 SUPPORT Conclusion It is hoped that the information contained in this Guide has addressed some of the basic questions and concerns regarding support trusts in the Province of Newfoundland and Labrador. More importantly, it is hoped that this information has removed some of the worry associated with the process and will lead to more families using this valuable tool as a method to financially provide for family members and friends in need of some extra help, both now and in the future. >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> > 18 Glossary of Terms Beneficiary: the person who receives money or other property under the terms of the trust. Discretionary Trust: a trust where the trustee(s) has full authority to decide whether or not trust monies or property will be used for the benefit of the beneficiary. Inter Vivos Trust: a trust that comes into effect during the lifetime of the person who sets it up. It is also called a living trust. Person Requiring Supportive Services: a person who, as certified by an approved professional, requires supportive services to assist with daily living. To qualify for a support trust, the provincial government must agree the person has a disability and is in need of supportive services. Settlor: a person(s) who sets up a trust and establishes the trust rules. Support Trust: is a trust established for the use and benefit of a person requiring supportive services. Testamentary Trust: a trust set up in a Will and operates when the person who set it up dies. Trustee: the person(s) or company that manages and administers the trust according to the trust rules. Trust: a legal arrangement where a person transfers assets to a trustee to manage for someone they wish to provide financial support (the person who receives the funds is the beneficiary)

19 SUPPORT Acknowledgements NLACL would like to thank Laura Brazil of Ottenheimer Baker, Barristers & Solicitors, and Ken Pike of the New Brunswick Association for Community Living (NBACL) for their guidance, advice and the use of materials in the preparation of this Guide. > >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >>> >> References Government of Newfoundland and Labrador, Department of Human Resources, Labour and Employment, Income and Employment Support Policy and Procedures Manual, Support Trusts (Note: The Department of Human Resources, Labour and Employment is now known as the Department of Advanced Education and Skills). Income and Employment Support Act, S.N.L. 2002, c. I-0.1 Income and Employment Support Regulations, Regulation 144/04 John A. Yogis, Canadian Law Dictionary, 6th ed., (United States: Barron s Educational Series, Inc., 2009) 19

20 The contents of this guide are for general information only and should not form the basis of legal advice. Date: October 25, 2013 Charitable Registration Number: RR0001 This guide was supported by the government of Newfoundland and Labrador; Department of Advanced Education and Skills For more information contact: Newfoundland and Labrador Association for Community Living ,