4.4 — Transfer of assets for inadequate consideration
Summary of Policy
The Director shall determine that an applicant is not eligible for income support or shall reduce income support in all cases where an assignment or transfer of assets was made for inadequate consideration or for the purpose of qualifying for ODSP within the year preceding the date of application. In cases where there is a valid explanation or an exceptional circumstance the director may determine that the transfer of assets was adequate regardless of the amount of compensation obtained.
Income charges will not be applied to the portion of a payment received from the sale of an asset that is, or with approval will be applied towards the purchase of a principal residence; the purchase of an asset necessary for the health and welfare of a member of the benefit unit; the purchase of or conversion to an exempt asset; or the purchase of or conversion to an asset within prescribed limits.
Summary of Directive
Provides direction about the transfer of assets, including property, both prior to and subsequent to an ODSP application and how to determine ineligibility or the amount of reduction in income support when the transfer/sale is for inadequate consideration. When the compensation is adequate but exceeds allowable asset levels, other regulations that may apply are addressed. Outlines the director’s authority to consider exceptional circumstances when determining whether or not there was adequate consideration.
Intent of Policy
To ensure that adequate compensation has been received for assets and/or real property which have been transferred and that such transfers are not made for the purpose of qualifying for ODSP.
Application of Policy
Value of Property Transferred Exceeds Allowable Asset Level
Where a transfer of assets and/or real property has occurred and the market value of such assets and/or real property, together with the value of any existing assets, exceeds the allowable level of assets the following will apply:
One year prior to the date of application, members of an applicant’s benefit unit cannot assign, transfer or dissipate assets in order to qualify for ODSP. This may be increased to three years if there is reason to believe that a three-year period of review is appropriate.
- Inadequate consideration will be assumed if the property was knowingly transferred for an amount that is at least 25% less than market value unless there is an acceptable explanation or an exceptional circumstance. One example of a valid explanation could be that the assets or real property were sold to repay debt or escape loss of equity due to repossession. An example of an exceptional circumstance could be when an applicant/recipient who does not have the capacity to make an informed decision regarding the disposition of the asset was unduly influenced or persuaded to transfer the asset to another person.
- The market value of the asset may be determined by consulting dealers in similar commodities to those transferred or by inspecting local real estate listings.
- At the time of application or during a time when the file is being reviewed, information about transfer of assets needs to be provided to the applicant. When a transfer of assets is reported, details of such transfers shall be fully documented. The onus is on the applicant/members of the benefit unit to provide verification of transfer of assets. Discretion may be exercised when deciding to obtain verification if there are significant costs associated with obtaining a bank statement.
- Where a transfer may affect eligibility for income support, the circumstances shall be reviewed and if the compensation was adequate but exceeds allowable assets, asset limits and assets that can be exempt should be explained.
- If assets were converted for the benefit of the applicant, rather than for the purpose of qualifying, consideration may be given to section 43(1)6 of the regulation. Income charges will not be applied to the portion of a payment received from the sale of any asset (exempt or non-exempt) that is applied towards the purchase of a principal residence; the purchase of an asset necessary for the health and welfare of a member of the benefit unit; the purchase of or conversion to an exempt asset; or the purchase of or conversion to an asset within prescribed limits.
Reason for Transfer
Inadequate consideration means knowingly not receiving a fair market value for an asset. Fair market value means the money that would have been received if the asset(s) were sold in a competitive situation, taking into consideration the conditions of the market and the attributes of the asset, such as age of asset, condition of asset, current market demand, and location of asset.
If the assets have been knowingly transferred without proper compensation, then those transferred assets shall be taken into account as if the applicant still had them. If the applicant/recipient is determined to have knowingly received inadequate consideration for an asset, then he/she is ineligible or the income support is reduced.
For example, an applicant who signs a mortgage free second property over to his son because the son and his family live in it and will inherit it one day anyway, has received inadequate consideration. In this case no money changed hands. However, if the son had been paying the mortgage since the father had paid the down payment, the house had not appreciated in value, and when the house was signed over, the son paid the father the amount of the down payment, it may be considered adequate consideration. In this case, the father received the amount of money he had paid into the house and there was no additional appreciation to consider.
Each case must be assessed individually to determine if the transfer was made for the purpose of qualifying for ODSP or for some other reason. Besides fair market value and record of debts, other factors that should be considered include:
- situation of applicant/recipient at time of disposal (including the applicant/recipient’s ability to make informed decisions regarding the manner in which the asset is disposed);
- disposal of asset close to time of application (If the asset was disposed of very close to the time of application it could possibly be seen as intent to qualify);
- time that has elapsed since disposal of asset;
- applicant’s current situation (income and expenses) (For example did their income unexpectedly decline after the transfer. If this happened then it could indicate the transfer was not made for the purpose of qualifying because they did not know their income would be declining), and
- repetitive history of inadequate consideration (If an inadequate disposition of assets has occurred in the past it could indicate that the person is making the transfers in order to continue to qualify for ODSP).
Inadequate Consideration for the Purpose of Qualifying
Where the transfer was clearly made for the purpose of qualifying for income support, the person will be deemed ineligible. The period of ineligibility will be determined by dividing the the additional amount the person should have received for a fair market value of item above what they actually received by (a) the previous month's ODSP income support (for recipients), or (b) the ODSP income support as if the applicant had not been deemed ineligible under this directive (for applicants). The "net amount of inadequacy" is the fair market value of the asset given the conditions of the market and the asset, minus the money received or amount owed if the asset was signed over without money being transferred and minus the maximum allowable asset limit after taking into account current assets. Verification of debt is required.
Example: Power pleasure boat signed over to a cousin to qualify. Boat could sell for $10,000. Single applicant has $35,000 in the bank so has $5,000 available before they reach maximum asset level of $40,000. Therefore, $5,000 can be subtracted from the $10,000 value of the boat. The remaining $5,000 of the value of the boat would be considered the additional amount the person should have received to allow for a fair market value of the boat (the net inadequacy)
Assuming the person otherwise qualified for ODSP and was eligible to receive $1,000 per month income support the period of ineligibility would be determined by the following calculation:
Net inadequacy ($5,000) divided by month ODSP eligibility amount ($1,000) = number of months of ineligibility (5).
In the above example the person would be ineligible for ODSP for 5 months.
Inadequate Consideration but NOT for the Purpose of Qualifying
Where the transfer is made for less than the fair market value, but NOT made for the purpose of qualifying for income support (for example, the person gives away an asset as a gift but did not do so because they were trying to reduce their assets in order to qualify for ODSP) the applicant/recipient shall be deemed eligible but the income support reduced to compensate for an established dollar value of the inadequate consideration. The reduction shall be no less than 5% nor more than 20% of the income support and shall continue until such time as the inadequacy has been compensated. The caseworker would have to review the circumstances of the transfer and take into consideration any mitigating factors to determine if the transfer was for the purpose of qualifying or some other reason. (For example at the time of the transfer the person may have been employed and did not think that they would be applying to ODSP. However, their situation may have changed shortly after the transfer. This could suggest the transfer was not made in order to qualify for ODSP.)
Example: Single applicant gave his cousin his fishing boat as a gift. It could sell for $10,000. This together with $33,000 in existing assets exceeds the current asset limit of $40,000 by $3,000. (Value of boat plus existing assets is $43,000 in assets.)The person would be be eligible for ODP but i a 5% reduction in the $1,000 monthly income support that the applicant is eligible to receive is applied. Therefore, $50 will be deducted monthly to pay off the $3,000 that remains above the asset limit.($3,000 divided by $50 = 60 months.)
Using Assets to Pay off Debt
An applicant/recipient may use assets to pay off pre-existing, previously recorded debts which, if not paid, could result in legal action being taken against them. Individuals must be able to verify through documentation the amount of the debt, that the debt existed prior to receipt of the asset and how and when the asset proceeds were used for the repayment of debt. Examples of acceptable verifiable debt may include government debt such as an Ontario Student Assistance Plan (OSAP) loan or a bill from legal aid. Other acceptable examples include credit card bills or loans from financial institutions. A receipt from OSAP or legal aid, a credit card statement or other official bill may be used to verify the date and amount paid toward the debt. Disposition of assets under these types of situations should not be considered an inadequate disposition of assets under ODSP.
Considerations in Determining Appropriate Reduction in Income Support
In determining the appropriate reduction within the 5% to 20% range, consideration should be given to factors such as:
- actual monthly expenses in relation to the amount of income support provided, such as extraordinary necessary expenses not provided under ODSP;
- actual shelter costs in relation to the amount included in the shelter allowance, i.e. shelter costs in excess of shelter allowance or shelter costs equal to shelter allowance.
All decisions must be documented and recorded on file.
Any transfer or assignment of real property or assets made by a dependent child must also be considered in determining entitlement.
Where the applicant/recipient is an adult who is providing temporary care for a child it may be that he/she is not the person who has control over the child's assets. However, any transaction or assignment of assets or real property would require clarification and discussion.