When preparing an estate plan, navigating the needs of a family member with special needs or disabilities is important. In these cases, a balance must be found to ensure the beneficiary is adequately provided for, while also securing their eligibility for long-term government benefits. Fortunately, the Henson Trust emerges as a powerful tool to protect their financial security and ensure continued access to government benefits.

This blog post will provide a high-level overview of Henson trusts, including when you might need one, the advantages and disadvantages of preparing one, and will explore how a Henson trust can be created in Ontario.

What is a Henson Trust?

Named after the 1989 landmark Ontario case, a Henson Trust is a type of discretionary trust specifically designed to benefit disabled individuals receiving government support programs, such as the Ontario Disability Support Program (ODSP).

The key element of a Henson Trust is that the beneficiary has no legal ownership of the assets held within the trust. Instead, the trustee holds and manages the trust assets, which are intended to provide for a beneficiary with disabilities or special needs, instead of providing the beneficiary with the assets upon the death of the trust creator. Legal title to the assets remains with the trust, meaning that the beneficiary does not own the assets “on paper,” which ensures that the beneficiary remains eligible for certain government assistance and benefits. Once the assets are paid to the beneficiary, they become an asset of the beneficiary and may impact their eligibility for social assistance.

The History of the Henson Trust

The case of Ontario (Director of Income Maintenance, Minister of Community & Social Services) v. Henson involved an Ontario man named Leonard Henson who had set up an absolute discretionary trust for his daughter. Although the Ontario Ministry of Community and Social Services argued that the daughter was the legal owner of the assets in the trust and denied her eligibility to means-tested government benefits, the Court concluded that she was, in fact, not the owner of the trust assets. Rather, the trustee had no obligation to pay the daughter anything from the trust, nor did the daughter have a legal right to demand payment from the trust.

This was affirmed by the Supreme Court of Canada in the case of S.A. v. Metro Vancouver Housing Corporation, when a person with disabilities (“S.A.”), who was residing in a subsidized rental unit, refused to provide the details regarding a discretionary trust of which she was the beneficiary of. The trust had been created in 2012 for her benefit, while her sister acted as one of the trustees. The chambers judge originally denied S.A.’s application, who found that the term “assets” included her interest in the trust. However, S.A. won her appeal at the Supreme Court of Canada when the Court ruled that S.A.’s interest in the trust did not form a part of her assets for the purpose of determining her eligibility for a rent subsidy. The Court went on to identify the key features of the Henson trust, which requires that:

• The trustee is given ultimate discretion regarding payments out of the trust to the person with disabilities for whom the trust was created; with the individual being unable to compel the trustee to make payments to them, which prevents the trust from unilaterally collapsing; and
• The word “assets” must be considered in its ordinary and grammatical meaning, such that a reasonable person who objectively interprets the assistance application would understand that the “assets” refer to an applicant’s property or interests in property that can actually be used to discharge their debts and liabilities.

Appointing a Trustee for a Henson Trust

It is important to note that the trustee of a Henson Trust has absolute discretion to give assets from the trust to the beneficiary. In other words, the trustee is not required to pay anything to the beneficiary, and the beneficiary cannot demand any payment from the trust. Therefore, when creating a Henson trust, a person must carefully consider who they choose to appoint as the trustee.

A trustee holds the assets held in the trust and is responsible for managing the trust and distributing assets in accordance with the terms of the trust.

Considerations When Preparing a Henson Trust

A Henson Trust can be set up as an inter vivos trust established during your lifetime, or as a testamentary trust to be established on your death under the terms of your Will. However, a Henson Trust must be planned in advance, as it cannot be settled by the beneficiary. It is also important to note that a Henson Trust is a separate taxpayer that must file its own annual income tax returns. Generally, income that is earned or retained in the trust will be taxes in the hands of the trust.

Although there is no limit to the assets that may be contributed to or settled into a Henson Trust, there may be limits regarding the distributions made from the trust to the beneficiary in order to not impact the disabled beneficiary’s entitlement to social assistance and other benefits. For example, a recipient under the Ontario Disability Support Program may only receive a maximum of $10,000 in any 12-month period consisting of gifts, insurance proceeds, inheritances, trusts and other voluntary payments.

Advantages and Disadvantages of Henson Trusts

A Henson Trust effectively cares for individuals with disabilities or special needs while minimizing the impact on their eligibility for government benefits and support. It also provides a long-term strategy for families in the event that the original beneficiary passes away prior to the depletion of the Henson trust assets.

However, while a Henson Trust may be a useful option for providing financial security to a disabled loved one, it may not be applicable in all circumstances. Henson Trusts require the trustee to retain ultimate discretion over the trust assets and distributions, meaning that the beneficiary cannot demand payment, nor is the trustee obligated to provide payments from the trust.

There are several other benefits and drawbacks to Henson Trusts, which is why it is crucial to work with an experienced estate planning lawyer and financial professional to ensure that your Henson trust is prepared properly, and any risks are mitigated.

Contact the Estate Planning Lawyers at Bader Law in Mississauga & Oakville for Advice on Wills and Trusts

At Bader Law, our trusted and experienced team of estate planning and administration lawyers regularly work with clients across Mississauga, Oakville, and throughout Ontario to help them prepare a comprehensive estate plan. Whether you are preparing your first will, wish to update an existing will due to a change in circumstances, or want to learn more about whether a Henson Trust is right for you, contact us online or by phone at (289) 652-9092 to learn how we can assist you.