Henson Trusts - Planning for a disabled child or relative in your Will

Henson Trusts - Planning for a disabled child or relative in your Will.

In contemplating how to adequately provide for dependants and loved ones in your Will, there are additional considerations that should be canvassed if the Will maker has a disabled child or relative who is receiving or may be entitled to receive government assistance. A Henson Trust is a type of trust specifically designed for persons with disabilities, to provide financial support for the disabled beneficiary during their lifetime without affecting their entitlement to means-tested government assistance, such as the benefits available under the Ontario Disability Support Program (“ODSP”).

A disabled persons eligibility for benefits under the ODSP is dependent on, amongst other things, the assets owned by the person such as money received from an inheritance. If the value of the asset is above a prescribed limit, then the individual is disqualified from receiving the ODSP benefits. If the asset or inheritance is held in a pure “discretionary” trust – a Henson Trust, then it is treated differently under the ODSP, such that it is not considered an “asset” for the purpose of determining a disabled persons eligibility for government assistance. ¹

The Henson trust derives its name from the landmark case of Ontario (Ministry of Community and Social Services, Income Maintenance Branch) v. Henson ². In that case, Mr. Henson had created a discretionary trust in his Will for the benefit of his disabled daughter, Audrey. The trust was drafted to give the trustee the absolute discretion in distributing the trust funds to Audrey and for her benefit, meaning Audrey had no authority to direct the trustees on when, how and in what amounts the payments from the trust were to be made. The ministry argued that the assets held in the trust should be considered as belonging to Audrey for the purpose of determining her eligibility for social assistance benefits. The court ruled that Audrey had no control over the trust and no absolute entitlement to the funds because the trustee had absolute and unfettered discretion, therefore the assets in the trust were not to be considered as belonging to her for eligibility purposes. ³

In S.A v. Metro Vancouver Housing Corp 4, the Supreme Court considered the disabled appellant A’s interest in a Henson trust, in determining whether it was an “asset” for the purpose of her eligibility for receiving housing assistance from the Metro Vancouver Housing Corporation. In allowing the appeal, Justice Cote stated that “… S.A. has no actual entitlement to the trust property under the terms of the Trust. Although she is a co-trustee, she has no independent, concrete right to compel any payments to be made to her or for her benefit, and cannot unilaterally terminate the Trust. Her interest in the trust property therefore amounts to a “mere hope” that the trustees will exercise their discretion in a manner favourable to her... For this reason, I conclude that her interest in the Trust is not an asset that could disqualify her from being considered by MVHC for a rent subsidy” ⁵.

Some of the key elements to a Henson trust include: 

• Fully discretionary: The trustees have absolute and unfettered discretion in making payments from the income and the capital of the trust to the disabled beneficiary and for their benefit. 

• No Vesting in the beneficiary: Since the trustee determines what amounts from the capital or income are paid out, and the disabled beneficiary has no control over it and no legal entitlement to it, the assets in the trust (the capital and income generated) can never “vest” in the beneficiary. In addition, the beneficiary cannot compel the trustee to terminate the trust. 

• The Rule Against Accumulation of Income: In Ontario, the Accumulations Act ⁶ allows for a maximum period of 21 years from the death of a testator, for the income from a trust to be accumulated and added to the capital. If the trust lasts for more than 21 years, then the trust should direct any income generated after that time to be paid out to someone else. A typical trust could designate that income to be paid out to the beneficiary of the trust but for a Henson trust, such a provision may vest the income in the disabled beneficiary and inadvertently disentitle them from receiving the government benefits.

• Provisions should be made for the remainder interest in the trust upon the death of the disabled beneficiary, otherwise it may pass on intestacy. 

Henson trusts can be both testamentary (i.e. made in a Will to apply after their death) or inter vivos (i.e. made by a person to apply while they are still alive). If you are considering setting up an inter vivos Henson trust during your lifetime, or a testamentary Henson trust in your will, you should consult with an estate planning lawyer to advise on your specific needs. A poorly drafted Henson trust can result in unintended consequences for the beneficiary. 

The pronouns “them” and “their” are used as both singular and plural as the context requires in this article. 

¹ www.ontario.ca/page/ontario-disability-support-program-eligibility-income-support; Sections 28 (1) para 19 and section 28 (3) Ontario Disability Support Program Act, 1997 O/Reg 222/98 p
² (1987), 28 E.T.R. 121 (Ont. Div. Ct.), affirmed at (1989), 36 E.T.R. 192 (O.C.A.).
³ IBID
⁴ 2019 SCJ 4; [2019] S.C.R. 99 (SCC)
⁵ IBID
⁶ R.S.O. 1990, c. A.5

The foregoing should not be considered to be legal advice and should not be relied upon as such. Please consult a lawyer to get advice and an opinion on your unique circumstances.