Suppose you’re preparing an estate plan and have a family member with disabilities or special needs. In that case, a balance must often be struck between ensuring the family member is adequately cared for while securing their long-term eligibility for government benefits. Unfortunately, providing adequate support for a family member by leaving assets to them may render them ineligible for certain benefits.
That’s where Henson trusts in Ontario can help.
What is a Henson trust, and when do you need one? In this article, we’ll cover everything you need to know about Henson trusts and the value they provide for family members with disabilities or special needs.
What Are Henson Trusts?
With Henson trusts, a trustee holds and manages trust assets intended for a beneficiary with disabilities or special needs rather than providing the assets to the beneficiary directly after the creator of the trust dies. Legal title to the assets remains with the trust, meaning that, “on paper,” the beneficiary does not own the assets. This strategy ensures that the beneficiary remains eligible for certain benefits.
Subsequently, the trustee has absolute discretion to give assets from the trust to the beneficiary. Remember that once those assets are paid to the beneficiary, they become an asset of the beneficiary and can impact their eligibility for social assistance and benefits.
Creating a Henson Trust in Ontario
If you’re considering creating a Henson trust in Ontario, speak with an experienced wills and estates lawyer. Given your unique circumstances, they will be able to advise you on the appropriate estate planning strategies.
If your lawyer determines that a Henson trust is right for you, the following considerations will come into play.
When to Set Up Henson Trusts in Ontario
Henson trusts can be created while you are still alive as an “inter vivos” trust or a “testamentary trust” that takes effect after you pass away. While either option may be beneficial depending on your circumstances, it’s important to note that there may be different tax implications on any income earned by the trust.
Requirements for Henson Trusts in Ontario
Henson trusts must include the following (as confirmed by the Supreme Court of Canada in S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4):
- The trust’s terms must provide the trustee with ultimate discretion over any distributions for the beneficiary (including the provision that the trustee can decide not to distribute anything to the beneficiary);
- The beneficiary has no power to compel the trustee to distribute any assets from the Henson trust – ultimately, the decision to distribute anything to the beneficiary must lay with the trustee;
- The beneficiary has no power to collapse the trust.
The trust should also specify what happens to assets remaining in the trust fund if and when the beneficiary dies.
Appointing a Trustee for Henson Trusts in Ontario
Appointing a trustee is essential when creating a trust – and Henson trusts are no different.
A trustee acts as the holder of the assets held in a trust. They are responsible for managing the trust and distributing assets following the terms of the trust.
With Henson trusts, trustees tend to have more discretion than a “normal” trust as they are granted ultimate discretion over distributions (and can choose not to distribute anything at all). To that end, individuals intending to create a Henson trust must think critically about who they appoint as trustees. Selecting a trusted family member or friend – or, in some cases, hiring a professional to manage the trust – is the best way to ensure peace of mind.
What Are the Benefits of Henson Trusts in Ontario?
Arguably, the most important benefit of Henson trusts in Ontario has been outlined above: they provide an effective means of caring for a beneficiary with special needs after you’re gone without leaving assets to them directly and, thus, impacting their eligibility for ongoing government benefits and support.
There are other benefits, though, including the following:
- Protecting family members with special needs: Depending on your beneficiary’s condition, having a trustee in place to manage and distribute assets can help prevent misuse of assets.
- Ensuring family members with special needs are cared for: Beyond protecting a family member’s eligibility for disability benefits, creating a Henson trust helps ensure that assets are set aside for them when they need them.
- Providing a long-term strategy for your family: With Henson trusts, you can direct the trustee to distribute the balance of the trust to other beneficiaries in the future (for example, if the beneficiary passes away before the balance of the trust assets is distributed).
What Are the Disadvantages of Henson Trusts in Ontario?
With any option, there are both advantages and disadvantages. Some of the potential disadvantages to consider with Henson trusts include the following:
- The trustee has unfettered discretion: More than most other types of trusts, the trustee of a Henson trust has nearly unfettered discretion when choosing whether to distribute assets. If, for example, the trustee chooses to give nothing to the beneficiary, they cannot demand payment.
- Payments to the beneficiary are limited: to stay within the appropriate income threshold, the trustee is limited in how much they can distribute to the beneficiary. While some expenses are “exempt” – disability-related expenses, for example, can be granted an exemption in some circumstances – a Henson trust can limit the level of support provided for the beneficiary.
Final Thoughts on Henson Trusts in Ontario
While Henson trusts can be valuable estate planning tools in some cases, many factors need to be considered when planning for the care of a family member with disabilities or special needs, including eligibility for government benefits, estate assets, and the level of care required.
Consulting with an experienced estate planning lawyer is essential for anyone interested in creating a trust – whether a Henson trust or otherwise. Using their knowledge and experience, an estate planning lawyer is in the best position to outline your options and work towards an estate planning solution that works for you and your family.
Contact the Estate Lawyers at Tierney Stauffer LLP for Comprehensive Estate Planning
At Tierney Stauffer LLP, we take a client-focused approach, providing innovative guidance through estate planning and administration. Whether you’re dealing with a deceased person’s estate or require estate planning assistance, our estate lawyers have extensive experience. We will work to secure the results you need to move forward. Call us at 1-888-799-8057 or contact us online to set up a consultation with an experienced wills and estates lawyer.