Trusts: Protecting the inheritance of a child with special needs

How are special needs defined?

Let’s first define what we mean here by “special needs.”  They can take 1,001 forms. For example, they could include:

• a physical disability,
• an intellectual disability,
• a neurodevelopmental disorder,
• substance use issues,
• or any other condition that results in your child, regardless of age, being deemed unable to work and receiving government benefits to address this situation.

Better protection of an inheritance

In the past, the legal community believed that the only way to pass on an inheritance to a child with special needs was to bequeath the money to a family member. The hope was that this person would use the funds for the child’s benefit and manage them responsibly. This approach was a risky gamble and offered parents very little peace of mind.

Today, a much safer solution that is recognized by law exists. Parents of a child with special needs can now rely on a mechanism to ensure their child’s financial security and well-being, even after they are gone. This is known as a trust.

How does a trust work?

You may view setting up a trust as a rather vague, out-of-reach process that takes an extremely long time. Rest assured, it’s actually quite accessible!
A trust can be described as an additional layer of protection for the inheritance you wish to leave your child. A notary specializing in trusts is therefore your best ally to guide you through this process. To find the right professional, consult the Chambre des notaires du Québec’s registry.

More specifically, the notary who will be responsible for drafting your will asks you to designate trusted individuals to manage your estate and determine how it will be distributed to the child. The money will be held in a bank account that is separate from the child’s account for day-to-day expenses and to which the child has no access. The funds will be distributed to the child in accordance with the instructions set forth in the will.

The cost of setting up a trust, just like the cost of having a will drafted, depends on each individual situation. However, keep in mind that there are ways to reduce the costs associated with creating a trust. For example, appointing close relatives (such as siblings or friends) as trustees will save you from paying professional fees. Be sure to discuss this in advance with the people you plan to appoint as trustees to ensure they are comfortable taking on this role! You can also decide, through your will, to offer them a sum of money to thank them for carrying out this task.

GOOD TO KNOW: Many people mistakenly believe that they need to hire professionals, such as accountants, to manage a trust on a day-to-day basis. The only real requirement is to have your child’s well-being at heart. And when certain tasks are beyond the capabilities of the people you’ve chosen, they can seek assistance from professionals to file the annual tax return, for example.

Keep in mind: The trust takes effect when the parent dies, not before.

How the trust works upon death

Once the assets and funds have been distributed to the beneficiaries named in the will, the estate will be settled. The administration of the trust can then begin.

The individuals you have appointed to administer the trust should first schedule an appointment with a tax specialist or a Chartered Professional Accountant. This professional will help them obtain the identification numbers necessary for the trust to be recognized by the tax authorities. The professional can also advise them on the steps to take and assist them with the financial and tax management of the trust if they feel the need.

To find an accountant, you can consult the Ordre des comptables professionnels agréés du Québec.

Tax specialists do not have their own professional association. They are generally Chartered Professional Accountant (CPAs), lawyers, or notaries who have developed expertise in taxation.

Once the professional has provided the necessary information to the trust administrators, they can proceed to open the trust’s bank account at the financial institution of their choice.

Be sure to have the following documents on hand during your appointment with the financial institution:

• the death certificate issued by the Director of civil status;
• a copy of the will (a photocopy will not be accepted; you must provide a copy of the will signed by the notary);
• the will searches conducted by the Barreau du Québec and the Chambre des notaires du Québec (these confirm that this is indeed the deceased’s last will).

These documents will be turned over to the trust’s administrators by the liquidator.

The liquidator will also provide the trust administrators with a check for the amount specified in the will for the trust.

Some financial institutions may also require a notary to complete a document confirming who manages the trust and to whom the money will be distributed. The trust administrators will be responsible for carrying out this task as needed.

Make the most of your meeting with your financial institution to discuss the different ways to make payments to the beneficiary. Some financial institutions allow the people managing the trust to have a credit card, while others do not.

That’s it! The process for the trust to take effect is now complete.

Inheritance and state benefits: is it possible?

The big question: “Is it possible to leave an inheritance to my child without them losing the government benefit that compensates them for being unable to work?”

The answer: Yes, provided the trust is properly administered. Trust experts (tax professionals, accountants, and notaries) can advise you on best practices to ensure the child is not penalized.

For example, if the child needs a tricycle, the trust can purchase it directly. The child uses it, but the tricycle remains the property of the trust. On the other hand, if the trust transfers a sum of money to the child via bank transfer so that the child can make the purchase themselves, that amount could be considered income or an asset. This could affect the child’s eligibility for certain programs or benefits.

Do you have questions about trusts, estates, or wills?  Consult our notary, it’s  free!