Secure Benefit Program

By Anthony S. White

George Provident died last October, survived by his wife and four children.

Some months before his death, George had reviewed his will, as had been his practice every four or five years, to make sure that his estate plan was in keeping with the nature of his estate assets and his family structure.

All of George’s children were in their late 30s and early 40s except his youngest daughter, Penny, who had just turned 30. George had been particularly concerned about Penny should anything happen to him, as she had a disability. While Penny was capable of living alone, due to the nature of her disability she was receiving full allowances and benefits from her provincial entitlements under the “Family Benefits Act”.

George, in planning his estate, wanted to make sure that Penny was able to maintain her usual lifestyle after he was gone, so in his will he allocated $80,000 to a trust for Penny. His intention by setting up the trust was to provide for Penny some funding for modest extras, as he had been doing over the course of his lifetime.

When George died, the executors of his estate found that two-thirds of the value of the assets in his estate consisted of real estate and George’s interest in a small business that he owned with two other partners. After paying George’s final expenses, filing his final tax return and paying some small bequests for grandchildren, the executors found they had to sell a recreational property in order to fund the trust for Penny. The sale had to be done promptly and in mid-winter, so that the proceeds of the sale were lower than what was originally expected.

But the trust was funded for the full $80,000, and thus it seemed Penny would be able to enjoy the benefit of the supplemental funding, as George had intended.

Regrettably, such was not to be the case. Owing to the actual wording of the trust of Penny, the assets of the trust were deemed to be property of Penny. As the $80,000 in the trust well exceeded the $3,000 limitation of personal liquid assets as outlined in the “Family Benefits Act”, the province terminated Penny’s entitlement under the act.

The result will be Penny will have to use the $80,000 fund for all of her expenses until such time as it is fully used up (or at least depleted to less than $3,000). At that point, Penny will be allowed to go through the exhaustive procedure of re-applying for her provincial benefits. Obviously, this was not the intent of her father, and has caused a great deal of concern for her family.

Could George have done anything differently to avoid some of the problems that occurred in settling the trust and his estate?

In drafting the trust for Penny, George could have used an Absolute Discretionary Trust. Assets in this specific form of trust have been held by the Ontario Court (Henson case – September 22, 1989) as not to be property of the beneficiary. Consequently, property in this form of trust will not interfere with provincial entitlements under the current legislation of the “Family Benefits Act”. If George had used this specific form of trust, then Penny could have derived benefit from the trust as was intended and continued to receive her provincial entitlements without interruption.

By choosing to fund the trust from the residue of his estate, George posed some difficulties for his executors and the other beneficiaries of his estate. As a trust in estate administration is considered to be a debt, it must be funded promptly from the estate assets. This forced the executors to proceed with the sale of estate assets at an inopportune time, and they were unable to realize the full market potential of the property they sold. This caused some difficulties with the remaining beneficiaries of the estate.

George could have allocated in his will specific assets of his estate to fund the trust. If such assets were in the form of GICs or bonds, or other guaranteed financial instruments, then he could have been sure of the trust being funded at full value.

One thing that George had done in the course of his later life was set aside a savings account intended for Penny, as well as a savings bond. Unfortunately, because of other expenses, the savings pattern was irregular, and his ultimate goal had not been achieved at the time of his death. In addition, he found that he was also paying additional income tax on the interest earned in the account as well as from the bond. When he died, the account and the bond totalled $30,000 and the balance of the trust had to be funded from other assets.

In designing his estate plan, and specifically the trust for Penny, George also could have considered an instrument such as the Secure Benefit Program as the funding vehicle for the trust.

The Secure Benefits Program is designed to address the issues of an Absolute Discretionary Trust in a simple, economic and guaranteed manner, and is available to most providers up to age 80. Owing to the unique structure of the program, it can provide a lifetime of financial security for the beneficiaries of the trust without interfering with provincial entitlements. It can also provide future funding for other persons or organizations. There is no financial institution fee or administration fee. Use of such a program can provide a great deal of flexibility to an estate plan, and at the same time create a significant capital pool for a trust at modest cost. A parent or other provider can provide guaranteed funding for a trust in an economic manner, in easily affordable payments, using dollars at a discount. Once the program is started, the trust will be fully funded no matter when the provider dies.

Within any family structure, particularly in the case of a dependent with a disability, there is an ever-present need for the provider to have a will. The will should be updated from time to time so that it reflects changing family structure and assets.

Financial support of a dependant with a disability following the death of a parent is now possible through the use of an Absolute Discretionary Trust. Such a bequest will not interfere with current provincial benefit entitlements. With the use of the Secure Benefit Program, the funding is now practical and possible for most parents, and provides a level of flexibility to an estate plan that has not been previously available.

Making an estate plans and will requires careful consideration as each family situation is unique. In the case of estates making provision for a person with a disability, planning is even more important.

Consequently, however you may wish to plan your estate, it should be planned well. As governments unwind and rearrange social welfare benefits, individual planning becomes most important, and has to be in place in order to secure the financial future of the beneficiary with a disability.

HOW MUCH WILL BE NEEDED?

Beneficiary: Age 30
Life Expectancy: Age 75
Income Required: $300/month for 45 years = $162,000
Provider: Age 55
To save $162,000 by age 75 will require $1,125 per month for 20 years = $270,000 … less tax at 40% = $162,000

To fund $300/month income
Provider Age 45: $77.40/month
Age 55: $139.96/month
Age 65: $251.28/month