Krista Clendenning J.D., T.E.P.
EIA disability trusts are a creature of the Manitoba Employment and Income Assistance (EIA) disability program. This type of trust is unique to Manitoba. Persons with severe and prolonged disabilities that are receiving support under the new Disability Support Act, a transition which began in January of 2023, may also set up an EIA disability trust.
The Regulations to The Manitoba Assistance Act set out the rules for these trusts and specifically treat the funds and property (with some exceptions and limitations) held in an EIA disability trust as separate from the financial resources of an EIA disability recipient. Funds deposited into an EIA disability trust can therefore be in excess of the current $4,000 liquid asset exemption, and will not impact the level of support received from EIA disability. There are certain restrictions on what types of funds can be contributed into an EIA disability trust. Any funds that are directly or indirectly derived from compensation for loss of income, replacement of income, or supplement to income, cannot be contributed to an EIA disability trust.
The trust is commonly settled by an EIA recipient that may have received an inheritance or other amount which would otherwise put them beyond the $4,000 liquid asset limit. Generally, the funds are set aside in a trust account, and a trustee is appointed to oversee the funds.
Contributions into an EIA disability trust can amount to no more than $200,000. However, it’s important to note, that the combined contribution limit for an individual is $200,000 for both the RDSP and EIA disability trust. Any contribution to one, impacts the contribution limit available to the other. For example, if you contribute $50,000 into an RDSP you can only fund an EIA disability trust up to a maximum of $150,000.
The trust may earn income on its contributions by investing the funds. Trustees should be wary regarding their investment obligations and generally are not able to take on much risk in their investment strategy. The trust can earn income and retain that income such that the total funds in the EIA disability trust amount to more than $200,000 as long as the contributions into the trust are not more than $200,000.
The Regulations require that the terms of trust be provided to EIA in writing along with confirmation of the settlement date of the trust. An annual report is also required by the end of February with details regarding the prior year, including, the value of the trust property at Dec 31st of the year, the contributions into the EIA disability trust in the prior year and the particulars of all disbursements from the EIA disability trust in the prior year. Trustees are also responsible for filing a tax return for the trust where applicable.
There are particular rules about how much you can withdraw from an EIA disability trust in a given year and for what purpose the funds are used. An unlimited amount of funds in a given year can be spent towards “disability related items or services.” Distributions from the trust for non-disability related expenses (i.e. everything else) must be limited to $4,000 per year. There is no direction provided for what is a “disability related item or service.” Confirming with your designated EIA worker, preferably in writing, that a particular expense will be considered as a “disability related expense” is the best option for having clarity as to the categorization of an expense as disability related or non-disability related. The trustee may also pay reasonable costs for the administration of the trust, including legal fees, fees for income tax preparation and taxes accruing from the property held in trust. The payment of these costs from the trust will not count towards the annual $4,000 limit of non-disability related expenses.
The terms of trust are set out in a Trust Agreement which is generally signed by the person contributing the funds (the “settlor”) and the trustee of the trust that will be managing the funds. The terms of trust tend to include directions regarding who will act as trustee, the powers of the trustees, distributions from the trust, and wind-up of the trust, among other things. Complexities arise where the funds to be contributed are the property of a person with disability that does not have the capacity to settle the trust. Think – an inheritance received by a person that is severely cognitively impaired. In that case, it may be possible to have a personal representative step in to establish the trust on behalf of the person lacking capacity.
There is a fair bit of confusion out there about the interplay between EIA disability trusts, Henson trusts and RDSPs. Each is a distinct planning strategy for a person with disability. When it comes to EIA disability trusts, record-keeping in accordance with the rules is key. If planning to set up an EIA disability trust, a formal trust agreement is recommended. It is after all, a technical requirement under the EIA Regulations.