As the parent of a child with a disability, you may find yourself worrying about your child’s financial security after you pass away. As a result, you may have set aside significant savings for your child to use after you are deceased. In order to pass the funds on to your child in a financially efficient manner, you should consider setting up a discretionary trust. The main advantage of setting up a discretionary trust for the benefit of your child, rather than giving the funds to him or her outright, as a lump sum gift, is to preserve your child’s right to monthly disability benefits. While monthly benefits may be reduced in months where your child receives a benefit from the trust, if drafted properly it should not eliminate the disability benefits altogether. In order to continue to qualify for disability benefits, you must ensure that your child does not have a right to income from the trust, or a right to any of the estate capital during his or her lifetime.
In addition to considering how to set up a discretionary trust for a disabled child, you must also consider who to appoint as the trustee of the discretionary trust. If you have more than one child, your natural instinct might be to appoint one of your non-disabled child as a trustee of disable child’s trust. However, this is not recommended, as your other children will likely also be beneficiaries of your estate, and in most cases are made the residual beneficiaries of the discretionary trust (ie. They receive the balance of the funds left in trust for your disabled child, after your disabled child passes away). As such, they stand to directly benefit from reducing payments to their disabled sibling. While this may not be their intention and you may have full confidence that they will act in their sibling’s best interest, they are nonetheless being placed in a position of conflict. The less they pay out of the discretionary trust to the benefit of their disabled sibling during his or her lifetime, the more funds there will be left to them personally after the disabled sibling dies. Consequently, in order to ensure a trust is set up properly, and all legal issues have been considered, including who to appoint as a trustee, you should seek legal advice specific to your situation.