Disabled Beneficiary – Henson Trusts
The following article was written by David J. Henderson, a member of our Gift Planning Services Committee:
Setting up your estate plan can be a stressful time filled with difficult decisions. Many individuals are concerned with 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 various programs for individuals in need of financial and personal assistance. In particular, the Ontario Disability Support Program (ODSP) assists 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. Upon receipt of an absolute gift of inheritance, the disabled individual could become ineligible for a disability pension. They would be forced to use their inheritance as a primary source of support, until the inheritance diminishes to the amount acceptable for ODSP.
To avoid the risk of losing the disability pension it is often appropriate to use a Henson Trust within the Will instead of an absolute gift. Courts have held that because the disabled individual cannot compel payments of funds out of the Henson Trust, the funds held in the trust do not affect the disabled individual’s 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 the individual 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.
It is important that the language of the Henson Trust explicitly state that the income shall not vest with the individual and that the trustee retains absolute and unfettered discretion.
When setting up a Henson Trust, one must be careful who they select as trustee(s). 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.