Henson Trusts and Ontario Disability Benefits

 In wills and estates

Introduction

It is important that you do not inadvertently disqualify a person with a disability to whom you want to provide financial support from means-tested Ontario disability benefits, as they must declare lump-sum payments they receive, and those payments could push then over the asset limits that allow them to receive those benefits. If you want to provide financial support to a person with a disability without disqualifying them from these programs, you should consider establishing for their benefit an absolute discretionary trust known as a Henson trust, which is structured in such a way so that the assets of the trust do not vest with the beneficiary and thus cannot be used to deny them means-tested government benefits.
 

Ontario Disability Benefits

In Ontario, many disability and health benefits are means-tested, in other words, based upon whether the individual possesses the financial means to live without that help. For instance, under the Ontario Disability Support Program Act,[i] no person is eligible for income support unless, their assets do not exceed the prescribed limits.[ii] Under the Ontario Disability Support Program (ODSP), the current prescribed limit for assets for a person with a disability is $40,000 plus $10,000 if there is a spouse included, and $500 for each dependant other than a spouse.[iii]
 
Not all assets are included in the above asset limits. The Regulations include exceptions, such as a car, student loans, a pre-paid funeral, a Registered Disability Savings Plan, the cash surrender value of life insurance policies, tools of the trade, a loan used for the purchase of an exempt asset, and an interest in a trust derived from an inheritance or life insurance proceeds to a limit of $100,000. The regulations even exempt a principal residence and a second residence held for the health or well-being of one or more members of the benefit unit (a person with a disability and their spouse and dependants). The residence can be owned by you, through a trust, a disability service, jointly with a family member, or directly by the disabled person.
 

Henson Trusts

Another exception is created by case law, called a Henson trust.[iv] A Henson trust, established as either a living trust or a testamentary trust, is an absolute discretionary trust, meaning that the trustee has the absolute discretion to decide how much capital or income, if any, to distribute to the beneficiary with a disability. The trustee, who has legal title to the property held in trust, does not have to make any payments to the disabled beneficiary, and the beneficiary cannot compel the trustee to do so. This is because the trust assets do not vest in the beneficiary. To prevent any such vesting, a Henson trust must include a gift over of any remainder of the capital of the trust, upon the death of the disabled beneficiary.[v]
 
As no interest in the trust property vests in the beneficiary, nor the right to demand that the trustee pay them income from the trust, the property is excluded from the beneficiary’s assets and cannot be used to interfere with beneficiary’s qualifications for government benefits. In 2019, this principle was affirmed by the Supreme Court of Canada.[vi]
 

Optional Powers for a Henson Trust Trustee

In your Henson trust, you may wish to give your trustee the following:

  • The ability to pay for the disabled person’s funeral expenses.
  • The power (at their complete discretion) to transfer some or all the money from the trust to the person with a disability if you think that person might be capable of handling their own funds.
  • Relief from the “even hand” rule so that the trustee does not have to act impartially, allowing them to favour the beneficiary with a disability over the residual beneficiaries.

 

Ontario Benefits and Henson Trust Income

A Henson trust can still disqualify a person with a disability from ODSP benefits if the trust pays that person too much income. Over a twelve-month period, a person with a disability may not receive payments from trusts in excess of $10,000, though with many exceptions.[vii] If you have the means to provide the disabled person with significantly more income than that, you may wish to create a regular trust.
 

Trustees

When creating a Henson trust, it is vital that you select a trustee in whom you have absolute faith. This person will have great deal of power and discretion. As such, you should select a trustee who will not abuse their position, will prioritize the best interests of the beneficiary who is disabled, and will not be in a conflict of interest. It is also a good idea to select someone involved in the disabled person’s life, will know what the beneficiary needs, will invest money wisely, and has good judgment.
 

Contact Us

If you have questions about this article or wish to establish a Henson trust for a loved one, please contact us at info@allenandallen.ca.
 
[i] 1997, S.O. 1997, c. 25, Sched.
[ii] Ibid. at s 5 (1).
[iii] O. Reg. 222/98, s. 27 (1).
[iv] Ontario (Director of Income Maintenance, Minister of Community & Social Services) v. Henson [Henson] 1989 CarswellOnt 542, [1989] O.J. No. 2093, 36 E.T.R. 192. In Henson, a testator named Leonard Henson set up an absolute discretionary trust for his disabled daughter. The Ontario government argued that the daughter’s interest in the trust constituted a liquid asset, disqualifying her from disability benefits. The Ontario Court of Appeal affirmed that the trust, because of its discretionary nature, was not a “liquid asset” beneficially owned by the daughter, and its value could not be included in the value of the daughter’s overall assets.
[v] There should also be a gift-over for the income earned from the capital of the trust. Under the Accumulations Act, RS.O. 1990, c. A.5, the trustee can only keep the trust’s income until the beneficiary turns eighteen years old, or twenty-one years from the date of making an inter vivos disposition or twenty-one years from the death of the grantor, settlor, or testator., whichever is later. After that time the trust must pay out all the income either to the person with a disability or another beneficiary.
[vi] S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4 (CanLII), [2019] 1 SCR 99.
[vii] O. Reg. 222/98, s. 43.

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