The Henson Trust: An Important Estate Planning Tool for Families that include a Disabled Person

Ram, the author of The Canadian Capitalist blog, recently wrote on the new RDSP program (Registered Disability Savings Plan) being offered by the government. I left a comment on the discussion mentioning that Henson Trusts are also worth looking at if you or someone you know has a family member who qualifies for Disability Support from the Government. Ram proposed that I write up a post on it, and I am dutifully obliging! :)

Here it is in a nutshell:

To qualify for Disability Support from the Government in the form of either payments or access to certain benefits (e.g. dental benefits, eye glasses, guide dog allowance, etc.) requires that you fall below certain income and asset levels. If you have too much income or too many assets, your assistance is reduced or cut-off altogether.

FlippingThroughBook.jpgIf someone closely related to the disabled person dies and leaves their estate to the disabled person, the inheritance may violate the eligibility to receive further support (since the assets/income may be too high now). A Henson Trust allows for the assets of the deceased to pass to an "Absolute Discretionary Trust", and therefore fall outside of the estate of the disabled – thereby allowing the support benefits to be maintained while still providing for the ability to increase their quality of life from the assets left to the trust.

The Origin

The name Henson trust refers to the name of the strategy as opposed to the actual type of trust you set up. The actual trust you set up is an Absolute Discretionary Trust. The name of the strategy comes from the person who first engaged it: Leonard Henson from the Guelph, Ontario area. He had set up the absolute discretionary trust for the ultimate benefit of his daughter Audra. The structure was challenged by the government, but after a number of appeals the strategy was upheld and has since been referred to as the "Henson Trust".

Some Useful Details

It is important to recognize that you must find an extremely reliable trustee (person or entity who administers the trust), because as the name implies the trustee will have absolute discretionary power over the trust. It is specifically this reason that the courts have allowed the assets in a Henson trust to NOT count towards the asset/income test for disability support eligibility. In other words, the disabled will technically not have any say in the governing of the trust. It is not uncommon to assign co-trustees in the form of a trusted family member in conjunction with a corporate trustee.

The trustees may use the funds as they wish for the benefit of the disabled person: they could pay for a trip to Europe, hire a full-time nurse, etc. But the disabled person has no right to demand money from the trustees. In fact the trust agreement or will should indicate that the trustees have the power to withhold income and capital as they see fit.

You can create a testamentary trust (which means it is created upon your death – "your last will and TESTAMENT") or you can create an inter-vivos trust (from the latin roots meaning "between" the "living"). As a general rule of thumb: Trusts are separate tax-payers in the eyes of the government, but Testamentary trusts are taxed with the same graduated tax rates of an individual while Inter Vivos trusts are generally taxed at the highest provincial and federal rates on all income. There is one additional provision allowable for inter vivos trusts when the beneficiary is a Preferred Beneficiary (by way of disability – subject to qualification) – it is possible to have income retained in the trust but taxed at the preferred beneficiary’s tax rates. (You’ll need to seek a qualified lawyer for clarification for your own situation and the viability of doing so.)

Final Notes

If you know of someone who has a family member who qualifies for disability support payments from the government, you may want to refer them to look into the Henson Trust strategy. They can allow for disabled persons to continue to receive vital disability support and program benefits in addition to benefiting from the estate of a deceased person – resulting in the maintenance or increase of quality of life.

You will definitely want to find a lawyer in your province to assist you though, as the structure is either challenged (Northwest Territories, Nunavut, Newfoundland) or not allowed (Alberta) in a handful of provinces/territories. It IS ALLOWED in: Ontario, BC, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, and PEI).

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Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 9 comments
  • MillionDollarJourney

    Preet, this is a really interesting strategy. Do you have any more details on the challenge it had in Newfoundland? Any idea the ballpark figure it would cost for a lawyer to set up one of these trusts?

  • Preet

    As far as I am aware, in Newfoundland and Labrador the trust cannot hold more than $100,000. If it does, the beneficiary becomes ineligible for government support.

    The Henson trust strategy is "fragile" everywhere according to what I’ve read in that any change in legislation will invalidate the structure (as happened in Ablerta in 1999 when they changed the regulations).

    Since you can create the trust testamentarily, you can have it written into your will – so whatever it costs you to have a will drawn up should be your cost.

    Once the trust is established – you’ll have the trustee fee and perhaps the accountant’s fee for preparing the trust’s tax return.

    So as far as I know, it should be covered under the cost of drafting your will (or codicil if you are between reviews) and then maybe a few hundred bucks to maintain it. It would be better to ask a lawyer of course.

  • Canadian Capitalist

    Thanks for the mention Preet. I’ve included this post in my weekly roundup.

  • Patsy

    Sis is disabled receiving goverment supportin a private residential care facility.
    Want to know how I as executor can set up an absolute discretionary trust for sis with a settlement received from an estate litigation. She is one of several beneficiaries . My father’s will said for the executor to set up a trust from which sis would receive the income from all stocks in my name at the time of my death. These stocks were not in his name at the time of his death as they were held jointly with the second wife. We do want to enhance her quality of life. Can I as executor set up an absolute discretionary trust with her share of the settlement funds. I want to do this without having to go through any more long court procedures and little legal hassels. This is not in Ontario

  • Preet

    Hi Patsy, something like that can only be answered by a qualified estate lawyer in your jurisdiction. Sorry I could not be of more assistance, but not only am I located in Ontario, I am not a lawyer. Again, I’m sorry that I don’t have an answer for you, but I don’t want to lead you astray: you need the counsel of a lawyer on this.

  • M.

    Hello Preet,

    I really found your article informative and would appreciate it if you could make some recommendations in my situation. To give you a little background, I am the Power of Attorney for my 39 year old Autistic Brother who had been living with our Mother his entire life and our Step Father for the past 18 years.

    Our Mother died suddenly 3 years ago at 55 years of age and just recently our Step Father died suddenly, both leaving no will. Before his death my Step Father told several people, including myself that he had arranged a Trust for my Brother for over $200,000. To date we are not able to find any documentation to support this and we are in the midst of litigation with the estranged children of our Step Father.

    My questions to you are as follows;

    1. I was wondering if you know if a Henson Trust can be set up without a will, after or during litigation and if the courts are generally opposed to the Henson Trust. My Lawyer seems to feel that the courts may frown upon the idea of someone with a large lump sum collecting further monies from the government.

    2. I was also wondering if there is a maximum amount for the Henson Trust in Ontario before ODSP would be affected. From my research it seems that on top of the above mentioned he can have $4000-$5000 in the bank, own a home, a car, and have RRSP’s and RRIF’s without any affect on his ODSP, is this true? If the ODSP is disqualified due to income at any one time, will his ODSP be reinstated again if the income goes below the qualifying amount?

    3. If he is awarded the family home, can it be sold to move him to a more suitable residence and one located closer to family, without his ODSP being affected? I am wondering if the estate home is sold, the monies from the sale of the home, would they be put in the Henson Trust and then later used to purchase him another residence. Would this be within the guidelines of the Henson Trust?

    4. I am considering contacting a Lawyer that deals specifically in Estate Law involving the Disabled, as I am concerned about ensuring that his needs are met for the future as my Mother and our Step Father had wanted. Do you know of anyone you could recommend? It seems the estranged children feel my Brother has no entitlements and I think I need a specialist to ensure I do what is best for my Brother.

    Thanking you in advance,

    M.

  • Preet

    Hi M., thanks for writing in – you are quite right in that you need to contact a specialist. While I can not vouch for Ken Pope as I have never dealt with him, I do know he presents himself as a Henson Trust Specialist. You may want to contact him for some more specialized advice for your situation (and consider some other specialists too – many large law firms will be able to help you out as well as they may have many different lawyers with their own specializations). Again, I need to re-iterate that I have not dealt with him, nor can I provide comment on his quality of service and knowledge – but you can do some more digging at: http://www.kpopelaw.ca/

    I hope it works out for you.

    Preet

  • parent

    Hi

    The Newfoundland and Labrador Support Trust is not an absolute discretionary trust as it is exempted from consideration from testing for income or disability supports. It is therefore, able to be vested with the preson with a disability.

    To my knowledge and according to information published by the Public Legal Information Association there has been no court test. THere is no legislation on the matter.

    It is worth noting that NL became the second jurisdiction behaind BC to exempt the Registered Disability Savings Program from income and disability supports means testing.

    The effect of this helps younger families due to the long term nature of the benefits and the fact that payout must begin at 60. There are significant bonds and grants and it is structured like the RESP.

    Check PLAN BC for further information.

    All jurisdictions should push to have governments allow the flow through.

  • JPL

    I am not a disabled person, but a Henson trust was set up in my name without my knowledge or consent and the Trustee is in conflict of interest because she is also a beneficiary.  Is this legal?