Henson Trust

Henson Trust: Financial Protection for a Disabled Individual

Setting up your estate plan can be a stressful time filled with difficult decisions. A concern for many individuals is how to protect and provide for a disabled family member in the event of their own incapacity or death.

The provincial government of Ontario has implemented various programs for individuals in need of financial and personal assistance. In particular, the Ontario Disability Support Program (ODSP) helps people with disabilities by providing financial assistance for living expenses, as well as health benefits, such as drug coverage, dental coverage and vision care.

The decision on whether an individual qualifies for a disability pension is based on their income and financial assets. As such, if a disabled individual were to receive their inheritance outright, it could detrimentally affect their eligibility to receive a disability pension.

Unfortunately, many individuals construct their Will to leave an outright distribution to the disabled individual. Upon receiving the gift, the disabled individual becomes ineligible for a disability pension. They are forced to use their inheritance as a primary source of support, until the inheritance diminishes to a small amount acceptable to the ODSP.

To avoid this scenario it is often appropriate to use a Henson Trust within the Will instead of an outright distribution. In the originating case, Ontario (Ministry of Community and Social Services) v. Henson, the Court held that because the disabled individual could not compel payments of funds, the funds held in the Henson Trust did not affect his eligibility for disability support programs.

A Henson Trust is a form of absolute discretionary trust, in which the funds are managed for the disabled individual – usually over the course of their lifetime – without them ever having a vested right to the income or capital. The trustee maintains absolute discretion over the timing and amount of payments of funds to the disabled individual.

When setting up a Henson Trust, one must be careful who they select as trustee. This individual will have absolute discretion over the amount of funds they provide to the disabled individual out of the Henson Trust. A decision will also need to be made on whom the funds will vest with upon the death of the disabled individual. If this is the same person as the trustee, it may create a conflict and detrimentally affect the disabled individual. Much thought should be given to these issues during the planning stages.

In summary, the correct implementation of a Henson Trust will shelter funds for the disabled individual in case of an emergency, while ensuring that they continue to receive a disability pension.

David Henderson
Trusts, Estates and Wills