The Inheritance That Could Cost Your Child Their Benefits
Doug and Sheila are in their mid-sixties and have three adult children. Two are working, raising families and doing fine. Their middle son, Nathan, is 34 and receives provincial disability benefits. He has his own small apartment, some help through the week, and a drug plan he requires for his disability.
When they recently sat down to update their wills, the easiest decision was how to divide things. Everything would go three ways, equally. Nobody wanted Nathan to feel he’d been treated differently, and splitting it evenly felt like the fairest thing a parent could do.
I understand the intention behind that decision. The trouble is how Nathan’s third would arrive. If it lands in his bank account the same way his brother’s and sister’s shares do, it could cost him his monthly benefit and his health coverage, and the money meant to give him a better life would end up paying for support he already had.
How an inheritance affects disability benefits
Provincial disability programs are means-tested. They look at what a person owns as well as what they receive, and each program sets a limit on how much a recipient can hold in assets that aren’t exempt. In Ontario, a single person on ODSP can hold up to $40,000. Under BC’s disability assistance for people with the PWD designation, and under Alberta’s AISH, the limit is $100,000.
An inheritance paid directly to your child counts. Depending on the program, it can be treated as income in the month it arrives and as an asset from then on. Once your child is over the limit, they can lose eligibility until the money is spent back down, and with it the health, dental and drug coverage attached to the benefit. In Ontario, rent-geared-to-income housing rules often follow ODSP’s, so housing can be affected too.
If an inheritance does land directly in your child’s account, some programs allow time to correct it. Alberta gives a recipient 365 days to move an inheritance into an exempt asset such as a trust or an RDSP. Ontario lets a recipient put up to $100,000 of inherited money into a trust for themselves. Those options help, but they depend on your child, or someone legally acting for them, getting good advice and acting on it while they’re still grieving you. It’s far better to have the right structure written into your will.
When the gift replaced the support
Wes had been on disability benefits for years when his aunt left him $85,000 in her will. She’d always wanted him to have a few things he couldn’t afford. The money went straight into his account, which put him well over his program’s asset limit, and his benefits stopped. Over the next two years most of his inheritance went to rent, groceries and prescriptions his drug plan used to cover. By the time he qualified again, there wasn’t much left for the extras his aunt had intended to gift him.
What a discretionary trust does differently
The standard answer is often a fully discretionary trust, usually called a Henson trust after the Ontario court case that established it. Instead of leaving Nathan’s share to Nathan, Doug and Sheila’s wills would leave it to a trust for his benefit. A trustee holds and invests the money and decides whether, when and how much to pay out for him.
Because Nathan has no right to demand any of it, the money isn’t treated as his. In 2019 the Supreme Court of Canada confirmed the features that make these trusts work: the trustee has the final say, the trustee doesn’t have to pay anything out, and the beneficiary can’t collapse the trust and take the money.
So Doug and Sheila don’t have to leave Nathan less. His share can still be a full third. It just goes into the trust instead of into his bank account.
Payments out of the trust still matter. Money the trustee pays to Nathan or for him can be counted as income by his program, and the rules differ based on jurisdiction. In Ontario, payments for disability-related costs are exempt without limit, while payments for other things are capped each year. In Alberta, trust income paid to the recipient can reduce the monthly benefit. A good trustee learns the rules for the program in their jurisdiction and plans payments around them.
The will should also say who receives whatever is left in the trust after Nathan’s death. For many families, that’s the other children or the grandchildren.
Where an RDSP fits
A Registered Disability Savings Plan is a savings plan for someone who qualifies for the Disability Tax Credit. The federal government adds grants and bonds up to the year the beneficiary turns 49, and the savings grow tax-deferred. Ontario, BC and Alberta’s programs don’t count RDSP savings as an asset.
An RDSP has a lifetime contribution limit of $200,000. A parent’s RRSP or RRIF can often be rolled into a financially dependent child’s RDSP at death, within that limit, deferring the tax that would otherwise come due on the parent’s final return. The trade-off is that RDSP money belongs to your child, and taking money out within ten years of receiving government grants or bonds means paying some of that money back.
Think of it this way. The RDSP grows money with the government’s help, up to a ceiling. The trust has no ceiling and keeps the decisions in a trustee’s hands. Many families use both.
If you have a child or grandchild on disability benefits, The Will Blueprint™ covers beneficiaries with disabilities and how you want your estate divided, with guidance based on where you live. You’ll arrive at your lawyer’s office having already thought through how each share should reach each child.
Choosing the trustee
In most wills, the executor’s job ends once the estate is wrapped up. A trustee for Nathan could be serving for forty years.
That person invests the money, files a tax return for the trust every year, keeps records, keeps up with program rules that change, and decides every request. They’ll be the one Nathan calls when he needs a new mattress or wants to take a trip, and the one who has to say “not this month” when a payment would cost him his benefits.
Many parents name one of the other children, and often that’s a good choice. A brother or sister usually knows Nathan better than anyone. But it can put them in a hard spot. They’re now the one deciding what their brother can and can’t have, which can change how they relate to each other. And if the siblings receive what’s left in the trust after Nathan’s death, every decision can feel complicated, even for the most caring and honest trustee.
Options worth discussing with your lawyer include naming two trustees who decide together, pairing a family member with a trust company, and naming a replacement trustee in case the first can’t carry on. A letter of wishes can tell the trustee what you’d want the money used for, even though it doesn’t bind them.
When the trustee is also family
Farah became trustee of her brother’s trust when their father died. She and her children were also next in line for whatever remained after her brother’s lifetime. When he asked for help replacing his car, she hesitated, worried about how it would look to the rest of the family. After a year of feeling like every decision was being watched, she asked a trust company to serve alongside her. She still knows her brother best, and now she has someone to share the harder calls with.
What changes depending on where you live
Every province and territory runs its own disability income program, and the differences can be significant. Quebec requires at least one trustee who is neither the person who created the trust nor a beneficiary. BC recognizes a second kind of trust, where your child has more say, as long as contributions stay at or under $200,000. Alberta launched a new program, ADAP, in July 2026 and moved many AISH clients onto it, so families there need to confirm which program their child is on.
Differences like these are why a plan that works in one province or territory may not work in another. Wherever your child lives, the questions worth asking a lawyer are much the same:
- How much can my child hold in assets before their benefits are affected?
- Does the program exempt a fully discretionary trust, does it recognize other kinds of trusts, and is there a limit on their size?
- How are payments out of the trust treated, and are some kinds of payments exempt?
- If my child receives money directly, is there a grace period to move it into a trust or an RDSP?
- Are there rules about who can serve as trustee?
The same applies if your child moves. A trust drafted with one program in mind should be reviewed against the rules of the new one.
The limits and rules around disability benefits change, sometimes with little notice. Before you finalize your will, confirm the current rules for your child’s program with a lawyer or other professional who works in this area.
Treating them fairly
Doug and Sheila can still treat all three children the same. Nathan’s third just needs a different route to reach him, one that protects what he already relies on and adds to it.
If you’re in their position, talk to a lawyer who does disability planning where your child lives, and talk to the person you’re thinking of naming as trustee before you put their name in the will. If your child is able to be part of that conversation, include them. It’s their future you’re planning.
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Disclaimer: This content is for general information only and is not legal, financial, medical, or tax advice.
