What is a Henson Trust

Protecting Those That Need It Most: What Is A Henson Trust

When you look towards writing out your will in Ontario, you think about those who you would want to inherit your valuables and your possessions after you’re gone. Whether you want to distribute your estate (your wealth, along with your assets) to children, grandchildren, other relatives, or even just close friends, it’s important for you to know that the people you care about most will benefit from everything that you worked for.

Yet what happens when your goal is to care for someone who cannot care for themselves? How do you leave assets to a person who, because of a disability, does not have the capacity to make decisions about their own financial future?

If you are the parent or caretaker of someone with a disability, you understand the stress and worry that are ever-present in trying to protect them and make sure that they are okay. That worry only worsens when you think about a time when you are no longer here to care for them physically. There is, however, a legal mechanism that is designed to protect these individuals, and that simultaneously ensures they will not be ‘cut off’ from their government benefits because of their inheritance. 

What is a Henson Trust?

A Henson Trust is an absolute discretionary trust that is often set up for a beneficiary who is receiving support through the Ontario Disability Support Program (“ODSP”). The Henson Trust is crucial since financial support through the ODSP program is calculated based in part on one’s means and income. Therefore, a sudden change in a beneficiary’s finances through a significant or moderate inheritance could reduce or even disqualify the beneficiary from their government support.

The money that is provided to a beneficiary through a Henson Trust is exempt from ODSP eligibility calculations. This means that no matter how much money is in the Henson Trust it will not count against a beneficiary’s ODSP entitlement, and they can continue to receive the social assistance that they have come to rely on for their daily needs in addition to the funds that are distributed to them or spent on their behalf by the trustee of a Henson Trust. 

A Henson Trust can also take several forms. It can hold cash or other assets, as well as real estate property. Additionally, while the Henson Trust is commonly used as a part of end-of-life estate planning, it can also be created as an ‘inter vivos’ trust, which means that it can come into use while the person giving the money (called the “settlor”) is still living. 

How does a Henson Trust work?

A Henson Trust is absolutely discretionary, which means that the trustee who is left in charge of controlling the assets has absolute discretion over what the beneficiary receives and when. In other words, the beneficiary has no ability to demand any money or assets from the trust. Generally speaking, a Henson Trust is meant to provide the necessities and comforts of life for a disabled beneficiary and therefore a trustee is given broad discretion on which type of things they may use the funds for, as long as it is used to benefit the beneficiary. The funds must never vest in the beneficiary, which means the wording of the trust must be drafted carefully with the assistance of an experienced trust lawyer. A Henson trust does not last forever. Like other trusts, it is subject to the rule against perpetuities and the rule against accumulations. Therefore, the settlor should consider who the contingent beneficiary or beneficiaries of the trust fund may be upon the death of the beneficiary or the expiry of the trust. 

A settlor should put a great deal of thought into who they appoint as the trustee of a Henson Trust.  A Henson trustee must shoulder a lot of responsibility, including overseeing and maintaining the assets in the trust (including any investments), keeping thorough records of the assets of the trust and any income received, preparing tax returns for the trust, reporting trust income to ODSP, and winding up the trust if the beneficiary passes on.

However, there is a key difference between a trustee in a Henson trust and a caregiver. Families often assume that just because a trustee will be protecting a person’s assets, they will also be protecting the beneficiary’s well-being, such as assisting with decisions about their medical or personal care. This is not the responsibility of a Henson trustee.  It may be necessary for someone to apply to the court to be appointed as the incapable person’s guardian to make personal care.  See our recent blog regarding Guardianship Applications .  

Who should be the trustee in a Henson Trust?

Because there is so much at stake in maintaining a Henson Trust, those establishing a trust should give careful thought to who they are going to leave in charge of protecting their loved one. 

The trustee should be familiar with the beneficiary on a personal level with an understanding of the beneficiary’s circumstances. Ideally, the trustee will be familiar with the details of the beneficiary’s disability, their finances (common expenses and income, if any) and what their long-term care plan is. It would also make sense to choose a trustee that is able to consistently monitor the beneficiary’s wellness and someone who is responsive. It may be difficult for someone who, for example, lives in Thunder Bay, to administer a Henson Trust in Windsor. The last thing that a settlor wants to worry about is that the beneficiary will not be able to enjoy the highest quality of life possible. A trustee’s prudent management of assets and judicious distribution of funds will help to ensure that the beneficiary of a Henson Trust is looked after for many years while maintain their highest possible entitlement to ODSP. 

A trustee’s age is also an important consideration. These trusts are usually set up as a long-term plan, so it would be ideal to have a trustee close in age to the beneficiary, presuming that they will share a similar lifespan. For example, placing a senior citizen in charge of a child beneficiary’s financial health may be effective in the short-term, but that trustee is unlikely to still be around when the beneficiary reaches adulthood. 

Who can help set up a Henson Trust?

At Pavey Law, our estate law professionals are deeply familiar with the process of drafting effective Henson Trusts as part of our estate planning services. Making a will is important for all Canadians, but it’s crucial when you have a vulnerable beneficiary who will be relying on others to make the right choices. Contact us today to set up a consultation if you need to plan for the financial future of a loved one after your passing.