What is the Purpose of a Henson Trust?
Disabled individuals’ eligibility for government assistance is often subject to conditions and requirements regarding their income or wealth. In Ontario’s ODSP Regulation, disabled individuals’ total assets must be below $40,000 if they are single or $50,000 for spouses, with an increase in the respective limit of $500 for each dependant that is not a spouse.1
In order to maintain their child’s eligibility for funding, parents often devise in their Wills what is known as a “Henson Trust.” A Henson Trust gives trustees “absolute and unfettered discretion” regarding the management and payment of a beneficiary’s inheritance, and prevents the beneficiary from compelling or forcing the trustees to distribute the funds to them.2
A Henson Trust is similar to a standard discretionary trust; however, for a trust to be a valid Henson Trust, it must be for the benefit of a disabled person who relies on government social assistance.3 In order to be a valid Henson Trust, the Will must put the income or capital beyond the reach of the beneficiary.4 This means that the value of the trust fund can never vest in the beneficiary, and that there needs to be provisions made for the distribution of the remaining value of the trust if the disabled beneficiary passes away or reaches the age of 65. If the beneficiary is the sole person entitled to the funds during and after the beneficiary’s lifetime, then a valid Henson Trust will not be created.
Since the disabled beneficiary of a well-crafted Henson Trust is not guaranteed access to the assets that form the Henson Trust, the amounts that the beneficiary receives from the trustee do not form part of the beneficiary’s assets, and, therefore, do not count towards any asset limit contemplated by the ODSP scheme.5
The Rule in Saunders v Vautier and the Henson Trust gift-over
There is a rule that has developed in the common law known as the “Rule in Saunders v Vautier”6 whereby a beneficiary or beneficiaries who are of sound mind and entitled to the whole beneficial interest can terminate the trust and force the trustee to transfer the assets of the trust to the beneficiary or beneficiaries.7 To prevent the application of the Rule in Saunders v Vautier, a Henson Trust usually contains a “gift-over” upon the death of the beneficiary, where the remainder of the trust is gifted to a different beneficiary.8 With a gift-over clause, the Henson Trust beneficiary (and, following their death, the beneficiary’s Estate) is not entitled to the remainder of the trust and, therefore not entitled to the whole beneficial interest of the trust. This prevents the assets of the trust from vesting in the disabled beneficiary.9 Absent a gift-over clause, the property of the Henson Trust would vest in the beneficiary and, upon that person’s death, the remainder would form part of the beneficiary’s Estate. This type of drafting would invalidate the Henson Trust, thereby potentially disqualifying the beneficiary from ODSP.
1 O Reg 222/98, s 27.
2 Ontario (Director of Income Maintenance, Minister of Community & Social Services) v Henson, 1987 CarswellOnt 654 at para 8.
3 Armstrong v Grant, 2023 SKKB 111 at para 38 [Armstrong].
4 Ontario (Director of Income Maintenance, Minister of Community & Social Services) v Powell, 1989 CarswellOnt 546 at para 8.
5 SA v Metro Vancouver Housing Corp, 2019 SCC 4 at paras 55 & 57 [Metro Vancouver].
6 1841 41 ER 482.
7 Armstrong, supra note 3 at para 90.
8 Stoor v Stoor Estate, 2014 ONSC 5684 at para 7.
9 Ibid.
10 Ibid at para 16.
Other Considerations
Since a Henson Trust beneficiary has no outright entitlement to the assets that form the Henson Trust, the creator of the Will only has “mere hope” that the trustees “will exercise their discretion in a manner favourable” to the beneficiary.11 The testator should choose someone that they trust to carry out these non-legally binding wishes, someone who understands the needs of the Henson Trust beneficiary, and someone that they believe can effectively and responsibly manage the assets to maximize the value and longevity of the trust. Proper drafting of a Henson Trust will include language that defines some of the specific needs and requirements of the beneficiary, such as services and devices related to their disability, the need for a principal residence, and modes of transportation.
In the creation of the Will, it is important that the wording of the Henson Trust does not provide absolute entitlement of all, or part of, the assets that form the trust to the beneficiary, and this can be achieved with a valid “gift-over” clause. It must also be clear that the transfer of benefits, funds, or assets to the beneficiary will always be subject to the absolute discretion of the trustee.
If you are looking for assistance with Estate Planning for disabled loved one, reach out to one of our experienced Wills & Estates lawyers today to start the discussion!
This article is intended for general information purposes only and is not intended to provide legal advice. Readers with concerns about how this affects situations or transactions should obtain the independent review and advice of legal counsel.
11 Metro Vancouver, supra note 5 at para 4.
12 Borges v Santos, 2017 ONCJ 651 at paras 54 and 59.