Starting September 1, Ontarians with disabilities will have more — but perhaps not enough — flexibility when it comes to their finances. Previously, single recipients of the Ontario Disability Support Program could only receive $6,000 in gifts in any 12-month period. Ontario has increased the amount to $10,000, which some advisors say is still insufficient.
“You painted the house but you haven’t renovated anything,” says Ron Malis, a Toronto advisor who specializes in clients with disabilities. He calls even the new limit “a significant barrier,” and notes that ODSP recipients in expensive cities like Toronto often can’t get by on the government benefit alone, especially since their expenses can be much higher than those of non-disabled people. “You may have [additional income] sources, but [the limit] means you can open the tap on those sources only so much.”
Also new: gifts of any amount will not count toward the $10,000 limit if the ODSP recipient uses the gifted funds to buy a home or a car, or pay first and last month’s rent.
For some clients, this can make a huge difference.
“I’m dealing with a case right now — a mother who lives with her disabled adult child,” says Jason Pereira, a senior financial consultant at Woodgate & IPC Securities Corp. in Toronto. The mother wants to downsize from a house to two units in the same condo building, and thanks to the new rules, she can now put one of the units in her son’s name instead of in a trust or keeping both in her name. “I think this lowers the bar of complexity,” he says.
But owning a home doesn’t mean a disabled client can pay for its upkeep. “If you think about it, you get $12,000 to $14,000 a year in ODSP benefits, plus now an extra $10,000 in gifts,” says Geoffrey Zaldin, president at Special Needs Financial Inc. in Toronto. “So $24,000. If you get a $400,000 condo, even if there’s not a mortgage, between taxes, hydro and condo fees potentially, you could be at almost half of what you’re allowed to have from ODSP benefits and gifts, minimum. And if you throw in a mortgage, it could be 100% of your allowed income. In which case, you’re allowed to have the exempt asset — you just can’t afford to maintain it.”
Zaldin says the cap on gift income should be sufficient to allow the person to pay a mortgage on a basic condo, along with condo fees, utilities and living expenses — which in many places will be higher than $10,000. To that end, he also suggests the cap be adjusted geographically (or allow more exemptions), as real estate in Toronto costs significantly more than in Thunder Bay, for example.
There’s good news on that front. Also starting Sept. 1, ODSP recipients’ asset limit will increase from $5,000 ($7,500 for couples) to $40,000 ($50,000 for couples). (Note that if an inheritance or any other gift or payment is kept, it is treated as an asset the month after it’s received, and ODSP asset rules apply.)
“You can’t underestimate the dignity aspect of it,” Pereira says. Under the new rules, clients will be able to keep more cash in their bank accounts, build emergency funds and simply have more control over their lives.
ODSP recipients whose assets exceed the limit will lose their ODSP unless they spend the excess funds or use them to purchase exempt assets, such as segregated funds or investments within an RDSP.
“The problem with an RDSP is that you can’t get at the money without suffering some significant government penalties,” says Malis. Because RDSPs are meant to encourage long-term savings, and because the government contributes up to $90,000 to each account, it “will take as much as $3 for every $1 that you take out [prematurely] as a penalty.” RDSPs also have a lifetime contribution limit of $200,000.
Losing ODSP benefits means losing more than just monthly cheques.
“The biggest government assistance would be the ODSP drug and dental program, because somebody could be on $100,000-a-year drugs,” Zaldin says.
Parents or any relatives who wish to bequeath or give ODSP recipients amounts above the limits can avoid threshold issues by putting the money in a Henson Trust, but Zaldin notes this must be done before a parent’s death; executors can’t set up such a trust when reviewing the will. Furthermore, money in a Henson Trust can only be spent on medically necessary goods and services (e.g., nursing) to be exempt from asset limit rules.
“So, you may have a Henson Trust of $1 million that your parents left you, but you’re going to be very limited in what you can use that isn’t absolutely medically required and allowed by ODSP,” Zaldin says.
In short, the upcoming changes are positive and allow for greater flexibility, but advisors will still need to ensure disabled clients don’t fall offside ODSP rules.