Special Needs Trust to Protect your Child
To schedule an appointment, contact our law firm at 403-400-4092 or Chris@NeufeldLegal.com
Having a special needs child is never easy, with most legal matters made all that much more complex by the particular technical requirements to continue government arrangements for your child's benefit, while making your own efforts to do everything possible for your child to make the most out of a very difficult and challenging situation. Walking this legal tightrope can be extremely stressful, given the legitimate concerns that you have for a child, especially when you are no longer around to watch out for them and provide your support when they oftentimes need it that much more. And for that reason, you need to be taking proactive steps now to appropriately protect and support their financial security in the future, given that in the event that you are no longer around, it is preferable that appropriate legal arrangements have been put in place, which reflect your intentions and what you believe are in the best interests of your special needs child, as opposed to hoping government agencies and government assigned personnel will make the best possible decisions for your special needs child if you are no longer around.
Critical to planning and safeguarding the interests of your special needs child is the establishment of a special needs trust (often referred to as a Henson Trust), which has numerous advantages that should be considered, including:
A. Preservation of Government Benefits
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This is the most significant advantage. Provincial disability support programs (such as Alberta's Assured Income for the Severely Handicapped (AISH)) have strict income and asset limits [more on AISH]. If a person with a disability receives an inheritance or a large gift outright, they could lose their eligibility for these essential benefits.
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A properly structured special needs trust ensures that the assets within the trust are not considered the beneficiary's personal assets.
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The trust's funds can then be used to supplement the government benefits, covering expenses that are not provided for, such as specialized equipment, therapies, recreational activities, or travel.
B. Professional Financial Management
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A special needs trust allows a trustee (or trustees) to manage the assets on behalf of the beneficiary. This is particularly important if the individual is not mentally capable of managing their own finances.
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The trustee can be a trusted family member, friend, or a professional with expertise in trust management. This ensures the funds are used responsibly and for the beneficiary's best interests over the long term.
C. Long-Term Financial Security
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A trust provides a legal framework for the long-term care of the individual. It ensures that funds are available for their needs throughout their lifetime, even after the death of the people who established the trust (e.g., parents or grandparents).
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It protects the assets from potential mismanagement or exploitation by others.
D. Tax Advantages
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A special needs trust can offer tax benefits, though the rules are complex and depend on the type of trust.
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A Qualified Disability Trust (QDT) is a type of testamentary trust (created in a will) that may be taxed at graduated personal tax rates, rather than the highest marginal tax rate that applies to most other trusts. This can help preserve more of the trust's capital [more on Qualified Disability Trust].
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The use of a trust can also provide flexibility in managing income and reducing the overall tax burden on the family's assets.
E. Flexibility and Control
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The person creating the trust (the "settlor" or "testator") can specify exactly how the funds should be used and for what purposes. This gives them peace of mind that their loved one will be cared for in the way they intended.
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A discretionary trust gives the trustee full discretion over when and how funds are distributed, which is the key to maintaining government benefit eligibility.
F. Succession Planning
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A special needs trust allows for the naming of residual beneficiaries. This means that when the disabled beneficiary passes away, any remaining trust assets can be distributed to other family members or heirs, rather than being claimed by the government (which can be a requirement for some first-party trusts in certain circumstances).
We welcome you to shedule an appointment with lawyer Christopher Neufeld, such that your estate planning objectives, including the legal and technical demands of your special needs child, are properly accounted for when structuring your inheritance to best protect your children in your absence. Contact our law firm today at 403-400-4092 or via email at Chris@NeufeldLegal.com to schedule a confidential initial consultation.
IMPORTANT NOTE: This website is designed for general informational purposes. The site is not designed to answer specific questions about your individual situation or entitlement. Do not rely upon the information provided on this website as legal advice in respect of your individual situation nor use it as substitute for individual legal advice. If you want specific legal advice, you need to engage a lawyer under established legal engagement procedures that have been specifically agreed to by that lawyer.
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