Are you leaving assets to a disabled dependent?
If you are leaving assets or inheritance to a disabled child or individual and you would like them to still be eligible for government benefits, something that should be considered is the use of an absolute discretionary trust for them. More commonly known as a Henson Trust, named so after Leonard Henson of Guelph, Ontario.
In 1989 the very specific wording of Leonard’s absolute discretionary trust was challenged by the Minister of Community and Social Services. The precise wording was ruled by the Supreme Court, and later the Court of Appeals, to mean that Leonard’s daughter had no assets of her own, and thus was eligible for government services such as ODSP. This differs significantly from assets held in a regular trust, as they would considered “owned” by disabled person. Which means in some circumstances they would need to be liquidated and used for care before the disabled person was eligible for government benefits. Not all Henson Trusts are created equal, as the wording of the trust determines how it will stand the test of time against legal challenges. Lawyers specializing in Henson Trusts are continually evolving the wording used to ensure the trust will be secure in the future.
Something to consider when forming a Henson Trust is the designation of the trustee or trustees if more than one is chosen. The wording of the trust that allows for the assets held in the trust not to be considered “owned’ by the disabled person, does so by giving absolute discretion of their use to the trustee. This means the trustee(s) has total control of the distribution of the assets. So it is of utmost importance that the person or persons chosen to be trustee(s) are capable of fulfilling their positions. There are two types of Henson Trusts. The most common one is a Henson Testamentary Trust, which is created in your Will. Less common is an inter vivos Henson trust, which is created while you are still alive. If your financial advisor has recommended setting up trusts for your children to be funded now, it is the inter vivos Henson Trust you would use for your disabled dependent. This is common for higher net worth individuals.
It is recommended that you have a legal counsel that specializes in Henson Trusts write or review the wording used to form the Henson Trust. With the wording being very specialized, and case law always evolving, they are best suited to provide appropriate advice. They can also help identify appropriate trustee(s) for the trust. Also this article is also only a short overview of absolute discretionary trusts (Henson Trusts), so legal counsel should provide further details and assess the appropriateness of use for you individually.
Information in this article is not legal or financial advice: The advice provided in this article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. You should not act or rely on any information in this article without consulting a qualified professional financial or legal adviser, as appropriate. You may reach out to the author of this article, Raymond Knight, at: [email protected].