Protecting Disability Benefits: Estate Planning for Persons with Disabilities in British Columbia

Articles

By Geoffrey White, KC, Shiona Nickel and articled student Braeden Rahn, TEP

Persons with disabilities and their families in British Columbia face a critical question: how to structure the person’s income and assets to maintain eligibility for government disability benefits?

The Ministry of Social Development and Poverty Reduction (the “Ministry”) administers the rules for receiving provincial disability benefits. The rules are set out in the Employment and Income Assistance for Persons With Disabilities Act. At the time of publishing this (March 2025) the current monthly ‘persons with disabilities’ benefits (“PWD Benefits”) for a single person are $1,483.50, plus limited health supplements. To maintain eligibility for the PWD Benefits, a recipient must meet both an income test and an asset test.

Understanding the Income and Asset Tests

1.    Income Test
  • A person can receive up to $16,200 per year in “earned income”, generally meaning employment income (after deductions for expenses including income tax, employment insurance, Canada Pension Plan, medical insurance, and other source deductions), without affecting their PWD Benefits.
  • However, there is not a similar exemption for unearned income. “Unearned income” is all amounts received by the person that are not:
    • earned income; or
    • exempted under the regulations (there more than 50 income exemptions – that are typically specific to payments by other government assistance programs).
  • All unearned income, and any earned income exceeding the $16,200 threshold, is deducted dollar-for-dollar from PWD Benefits.
2.    Asset Test
  • To remain eligible, a person cannot have more than $100,000 in assets (other than certain exempt assets, which are described below).
  • Assets include: cash, investments, and personal property that can be sold or converted to cash.
  • A direct inheritance or estate distribution that pushes total assets over this limit will disqualify the beneficiary from PWD Benefits. (A well-intentioned gift meant to help a family member could disqualify the person from PWD Benefits and may cause the person to no longer be eligible to live in subsidized supportive housing).

How to Preserve PWD Benefits: The Role of Trusts

PWD Benefits provide only a basic level of income. The Ministry’s own materials acknowledge that many recipients have extra costs because of their disability (for example, adaptations to their home, mobility aids, home support workers, etc.). The Ministry fully supports the use of private funds to supplement PWD Benefits to ensure that recipients can have an adequate standard of life.

Contrary to common belief, a person can have access to more than $100,000 in assets without losing eligibility for PWD Benefits if their assets are carefully structured. In fact, a person can have all of the following without losing eligibility for PWD Benefits:

  • Up to $100,000 in personal assets (held outside a trust);
  • Up to $200,000 in contributions to a non-discretionary trust, which may include certain Tax-Free Savings Accounts (TFSAs) that have been structured by the plan provider as trusts;
  • Up to $200,000 in contributions to a Registered Disability Savings Plan (RDSP);
  • Unlimited funds in a fully discretionary trust (Henson Trust);
  • One principal residence;
  • One vehicle; and
  • Certain other exempt assets, such as personal belongings and medical equipment.

Types of Trusts

A trust is a relationship in which a person (the settlor) gives property to another person (the trustee) for the benefit of another person (the beneficiary). For example, a person may give $100,000 to her son to hold in trust for the benefit of her son’s daughter with a disability. In that case, the son is the trustee and holds the $100,000 in trust to be used only for the benefit of his daughter, according to the terms of the trust that were set out by the settlor. The Ministry recognizes two types of trusts:

  • Discretionary Trust – The trustee has full control over how and when distributions are made, meaning the beneficiary has no power to compel distributions or to end the trust unilaterally. A discretionary trust designed for a person with disabilities is often referred to as a Henson Trust. This type of trust is not considered an asset of the beneficiary for the purposes of the Ministry’s asset test for PWD Benefits.  A Henson Trust can hold assets (of unlimited value) without impacting the beneficiary’s PWD Benefits. This is because the Trust has no asset value for the beneficiary.  (Note that other programs for disability or low-income benefits or subsidies may treat Henson Trusts differently based on their own specific policy.)  The Henson trust is also useful for protecting assets for a beneficiary who might be vulnerable to undue influence.
  • Non-Discretionary Trust – The trustee must follow specific instructions regarding distributions. The terms that the trustee must follow are set out in the trust (usually a written document).  In some non-discretionary trusts, the beneficiary may have control by acting as the trustee of the trust.  The Ministry considers a non-discretionary trust to be an asset of the beneficiary, but contributions up to $200,000 are exempt. This type of trust may be useful when the goal is to give the beneficiary control over certain amounts.

Distributions from a trust (either discretionary or non-discretionary) to a recipient of PWD Benefits are considered “unearned income” and may impact the recipient’s eligibility under the income test.  To avoid this, a trustee should ensure that payments made from the trust are only used to pay for or reimburse the recipient for “disability-related costs”.  This includes:

  • medical aids related to improving the person’s health or well-being;
  • renovations to the person’s place of residence necessary to accommodate the needs resulting from the person’s disability and necessary maintenance for that place of residence (if the person does not reside in a special care facility);
  • caregiver services or other services related to the person’s disability;
  • education or training; or,
  • any other item or service that promotes the person’s independence (the Ministry interprets “independence” broadly).

Takeaway

Improper estate planning may result in your family members with disabilities losing access to the PWD Benefits and supports upon which they rely.  Proper estate planning, including the use of trusts, ensures a person can remain eligible (under the asset test) to keep receiving their PWD Benefits, and can also improve their living conditions (when the trust pays for disability-related costs).  Your family member can benefit from the family’s private financial support without losing the safety net of their eligibility for government assistance.

For guidance on estate and disability planning to protect a person and their PWD Benefits, please contact Geoffrey White, KC, Shiona Nickel or any member of our Estates & Trusts group.