Estate Planning for Handicapped Adults
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Estate Planning - Trusts - Foreign Property - Guardianship - Divorce - Disabled Kids - Handicapped Adults
Estate planning for adults with disabilities requires an appropriate balance between providing financial security and maintaining eligibility for essential provincial supports. Because programs like Assured Income for the Severely Handicapped (AISH) are strictly asset and income-tested, a well-intentioned but poorly structured inheritance can inadvertently disqualify a beneficiary from their primary source of income and medical coverage.
For handicapped individuals in Alberta, the foremost consideration in estate planning is the impact of inheritance (or the income arising from settlement payments) on AISH (Assured Income for the Severely Handicapped). AISH restricts recipients to $100,000 in non-exempt assets; exceeding this limit can lead to an immediate suspension of benefits [more on AISH exempt vs non-exempt]. Fortunately, Alberta legislation allows a 365-day grace period for a beneficiary to move an inheritance into an exempt asset, such as a trust or a Registered Disability Savings Plan. Planning ahead ensures that the transition is seamless and that the beneficiary does not lose access to critical health benefits or their monthly living allowance while the estate is being settled (or investment income is generated from injury settlement payments).
A common tool used to navigate these asset limits is the Henson Trust (a specific form of an absolute discretionary trust). Unlike standard trusts, the assets within a Henson Trust are not considered the property of the beneficiary because the trustee has unfettered discretion over when and how much money is distributed. Since the beneficiary cannot compel a payment, AISH generally treats the trust principal as an exempt asset, regardless of its value. This allows parents or guardians to set aside significant funds (well beyond the $100,000 limit) to supplement the adult’s lifestyle without jeopardizing their provincial support.
The Registered Disability Savings Plan (RDSP) is a powerful, tax-sheltered vehicle specifically designed for individuals who qualify for the federal Disability Tax Credit (DTC). In Alberta, RDSPs are considered fully exempt assets for AISH purposes, meaning the total value of the plan does not count toward the $100,000 asset cap. Families can contribute up to a lifetime limit of $200,000, and the federal government may provide matching grants and bonds to further grow the fund. Furthermore, if a parent or grandparent passes away, they can often roll over their RRSP or RRIF proceeds into the disabled child’s RDSP on a tax-deferred basis, provided there is remaining contribution room.
Legal capacity is a critical factor under the Adult Guardianship and Trusteeship Act (Alberta). If the disabled adult lacks the mental capacity to manage their own finances, they cannot legally sign a Will or a Power of Attorney. In these cases, family members may need to apply to the Alberta Court of King’s Bench for a Trusteeship Order (for financial matters) or a Guardianship Order (for personal and healthcare decisions). Proactive estate planning should identify who will step into these roles, ensuring that the chosen representatives are suitable under the law and prepared to act in the best interests of the adult according to the guiding principles of the Adult Guardianship and Trusteeship Act .
Finally, it is critical to account for the statutory obligations under the Wills and Succession Act (Alberta), which imposes a legal duty on parents to adequately provide for adult children who are unable to earn a livelihood due to a disability. If a parent fails to do so, the child (or their representative) can make a claim against the estate for a larger share. To manage the tax burden on these provisions, families often look toward a Qualified Disability Trust. A Qualified Disability Trust is a testamentary trust that allows income retained within the trust to be taxed at graduated tax rates rather than the highest marginal rate, significantly preserving the estate’s capital for the beneficiary’s future needs [more on significant attainable tax savings].
Contact our law firm today to learn how our legal team can help you plan for the future or deal with the legal demands associated with the passing of a loved one. Contact our law firm at 403-400-4092 or via email at Chris@NeufeldLegal.com to schedule a confidential initial consultation.
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