A QDT is a tax advantaged trust available to beneficiaries who qualify for the Disability Tax Credit (DTC). It is an estate planning tool that must be created through a will as a testamentary trust and only becomes active when the person who wrote the will (the settler) passes away. The executor is then responsible for setting up the trust upon death as per the instructions of the will. One of the goals of the trust is to continue to financially support the disabled beneficiary after the primary caregiver has died.
Does a QDT have upper limits?
Unlike a Registered Disability Savings Plan (RDSP) which has a $200,000 lifetime contribution limit, a QDT plan allows for unlimited contributions. Further, it can hold any amount of assets from a will or life insurance payout. The key difference is that a QDT is strictly a testamentary tool, meaning one cannot gift money into a QDT while they are alive to exempt assets that belong to the beneficiary like the RDSP can.
What are the tax implications?
A QDT avoids flat tax rates. While most trusts are subject to the highest possible tax rate on every dollar of interest or profit it earns, a QDT uses graduated tax rates which is a more favourable taxation of capital left to the beneficiary. This means the trust pays much lower taxes on its earnings, and ensures money left to support the beneficiary is preserved much longer.
How does this work with Henson Trusts?
QDT cooperates with Henson Trust provisions. By structuring a QDT with specific discretionary language and ensuring the trustee has absolute discretion over the funds and the beneficiary has no legal rights to demand payments, money inside the trust is exempt with respect to provincial disability asset limits. A beneficiary can have a large inheritance in a QDT and maintain provincial social assistance supports along with drug and dental benefits.
Estimate and compare income taxes for QDTs vs Standard Trusts using this calculator