By Halldor K. Bjarnason, Lawyer
Q: How do parents set up a condo in trust for their disabled son/daughter? How do they work the finances?
A: This simple set of questions can best be answered with: “It depends”. As there are thousands of possible variants, it is impossible to give a straight answer without an intimate understanding of the family’s financial situation, their objectives, and the circumstances/needs of the son/daughter. A trust can be an excellent way to own a home. However, it also has drawbacks. The following are a FEW of the issues that need to be considered:
a) Do you have a trustee who is willing to act? What responsibilities will they have? (Are they just the legal owners, will they be responsible for the day-to-day maintenance of the condo, or will it be somewhere in between?) How much will they charge? How will their fees be paid?
b) What obligations will the trustee have? (Just holding the title of the condo? Managing major upkeep only? Managing all upkeep, and paying utilities, taxes, and other fees?)
c) If the trust is responsible for paying for all condo expenses, does it have the resources to do so for the next 10, 20, 30, or 40 years?
d) If the trust is not responsible for paying all of the condo expenses, who is responsible? What happens if they don’t meet their responsibilities?
e) Is the condo going to have a mortgage? If so, who is going to be a guarantor for the mortgage? (Banks typically won’t accept a trust holding a mortgaged property unless an individual, with sufficient assets, is willing to act as a guarantor. It is often too much work to sue a trust if there’s a default on the mortgage.) Who will make the mortgage payments?
f) If the trust (or anyone else involved) can’t meet the financial obligations, does the trust have the power to sell the condo?
g) What will be in the trust? (Just the condo? Other assets?) If just the condo, how will the trust pay for condo expenses?
h) Is the trust going to hold the condo outright, or is it going to grant a life interest to the beneficiary? A life interest will give access to the home owner’s grant, CMHC grants, etc, but if the beneficiary has capacity issues, selling the condo if the beneficiary has a life interest could pose a problem. On the other hand, if there are tenants or roommates in the condo, a life interest will likely deflect the rental income to your son/daughter – potentially impacting on their PWD. It’s a fine balance!
i) What costs will your son/daughter be responsible for paying? If the trust pays for everything, your son/daughter will not qualify for the $375 shelter allowance.
j) If the trust has granted a life interest to your son/daughter, then charging him/her rent won’t make logical sense – you can’t rent something you already own! As a result, if there’s a life interest, then having the beneficiary pay for specific condo-related expenses – such as strata fees, property taxes, hydro, etc – makes more sense.
k) On the other hand, if there’s no life interest, then having the trust charge rent might be an option. However, if the trust is charging $375/month rent on a condo which has a market value of $1500/month, is the trust giving a financial benefit to your son/daughter? Will this affect their PWD?
The upshot is, there’s no “simple answer” or “straight formula” to holding a condo in trust for a person on PWD. While a great idea, it needs a lot of planning, and consideration should be given to both current and future resources and needs.
I always encourage my clients to give a lot of thought to the process BEFORE making the purchase.
The foregoing is intended as legal information only, and does not constitute legal advice. As specific facts can affect the legal outcome, always consult with a lawyer to determine how the law affects your situation. For further information, please visit our website at: www.trustlawyers.ca