Does a trust that you alone can unilaterally revoke "whenever [you] want" really offer you any benefits with government disability programs?
Yes, as long as I cannot directly control (spend) the money while the Trust is in place. A third-party must approve any spending in advance of disbursement, and the government also gets to dictate what the third-party can approve. Lots of checks and balances. But that's not really the question here (that part is all sorted out, legally and financially, and there are other benefits to the Trust, too).
Now, I know you said this was not the focus of the topic, and so I apologise for the off-topic post. However, I was curious about what you said -- hence my question -- and since I did the research, I figured I might as well post it here.
I have restricted my research to the disability program established by the
Employment and Assistance for Persons with Disabilities Act, SBC 2002, c 41.
First things first: If the beneficiary can revoke the trust whenever she wants, then she has complete control over the trust funds. She isn't at the mercy of any discretionary power of distribution, because she can just revoke the trust and spend the funds directly. I found no case law on this topic for BC, but
this policy document from the ministry that administers disability programs in BC says that "[
i]f the beneficiary has a legal right to collapse the trust and gain control of the assets, the ministry considers the trust to be an asset", which is consistent with what I would expect.
However, it turns out that the discussion does not end there because the
Employment and Assistance for Persons with Disabilities Regulation, BC Reg 265/2002, contains an extremely generous exemption in s 12(1) which excludes from the means-testing the assets of a trust of a person with disabilities so long as the capital contributed to the trust is not more than $200,000, and so long as certain reporting requirements are complied with. Here are some interesting things about this exemption:
- The beneficiary is apparently allowed to have complete and unfettered control over the distribution of the funds.
- There is apparently no restriction on the purpose of the trust.
- Distributions from the trust can apparently be used for anything, with no restrictions.
Even though a trust with less than $200,000 of capital will apparently be exempt as an asset regardless of what the trust is used for, distributions from the trust will count as income and act to reduce any disability benefits unless the distribution is used for disability-related costs or a couple other permissible things: s 7(1)(d) of Sch B. There is no requirement of any approval by anybody other than the beneficiary. The only thing that matters for the income exemption is what the distribution is used for.
In addition to that income exemption, s 7(1)(d.3) of Sch B also exempts from income the first $8,000 of distributions from trusts that are used exclusively for disability-related costs to "promote independence". However, this is a subset of what is allowed by the previous exemption and the previous exemption has no dollar limit, so it's unclear why this exists as separate exemption.
In one of the only reported cases on this regulation,
D.J.C. v. B.M.C., 2003 BCSC 291, at para 35, a judge noted that the BC scheme is apparently unconventional:
| | Counsel are under the impression that the "trust" contemplated by the regulations lacks some of the characteristics of a conventional trust, in that it is created and managed by the beneficiary, who in this case would be Mrs. B.M.C.. Apparently, her Ministry worker would have to approve any proposed withdrawal. Counsel believe that approval tends to be readily granted and interpretation of the categories quite flexible.
|
Although the judge alludes to ministry approval, he does not inform us what the alleged legal basis for that requirement is. I am unable to locate any legal basis for it.
The case of
K.A.K. v. British Columbia, 2011 BCSC 1391, is even stranger because the judge actually heard testimony from ministry officials on the meaning of the regulation. At paras 383-385, she then relied on that testimony to apply the law. To say the least, this procedure was highly irregular because testimony on the meaning of domestic law is in fact not admissible evidence and relying on testimony to interpret a regulation was, with all due respect to the judge, legal error.
While browsing this regulation, I also came across what appears to be a ridiculous loophole in their entire income-counting scheme. Section 1(c) and 2(a)(i) of Sch B together say that an amount deducted at source for income tax does not count in income. Meanwhile, s 7(1)(f) of Sch B says that a "tax refund" is exempt income, and s 10(1)(ss) says that a "tax refund" is an exempt asset. Finally, s 153(1.2) of the
Income Tax Act, RSC 1985, c 1 (5th Supp), provides that taxpayers may elect to arbitrarily increase the amount of tax withheld from their wages.
The combined effect of these provisions is that you can have your entire income withheld at source for tax and then received entirely as a "tax refund" and thus avoid it being counted as income. Somebody with a job paying $1,000,000 per year could apparently pass this not-so-rigorous means-testing scheme.
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For all we know, scrubbyfish might be interested in a completely unrelated program to the one I just researched, but as I said, I just spent a couple hours learning about this so I might as well post it.
