RESOURCES

As lawyers we are part of the estate planning process that assists in securing the financial future of clients and their relatives with disabilities while ensuring their eligibility for provincial government benefits.

A Henson Trust is a specialized trust designed to provide financial security for individuals with disabilities without compromising their access to essential government assistance programs. The landmark case Amend Estate v. Henson (1989) by the Ontario Court of Appeal established that discretionary trusts, where trustees have absolute discretion over fund distribution, do not count as personal assets of beneficiaries.

This ruling allows individuals with disabilities to receive inheritances without losing their eligibility for benefits. By transferring legal ownership of the inheritance to a trustee who manages the assets on behalf of the beneficiary, a Henson Trust ensures continued eligibility for government assistance.

Benefits and Drawbacks of a Henson Trust

Henson Trusts offer an invaluable solution for families aiming to support relatives with disabilities without affecting their eligibility for government benefits. By assigning legal ownership of the inheritance to a trustee with “absolute and unfettered discretion,” the trust ensures that beneficiaries cannot directly access the funds, thus preserving their entitlement to social assistance. This arrangement enhances the beneficiary’s quality of life through prudent financial management while also offering favorable tax treatment, as the income is taxed at the beneficiary’s marginal rate, often resulting in minimal tax liability.

One significant advantage of a Henson Trust is its ability to protect beneficiaries from financial mismanagement and potential exploitation. Trustees manage and disburse the funds, ensuring the inheritance is used wisely and lasts to meet the beneficiary’s needs. However, selecting a reliable trustee is crucial, as conflicts of interest can arise, particularly if the trustee is also an heir to the remaining assets. Additionally, the trust involves ongoing administrative costs, including legal and accounting fees, which need to be considered.

Despite the complexities involved, Henson Trusts remain an essential tool for securing the financial future of individuals with disabilities, balancing the need for support with the preservation of critical government benefits. This trust structure effectively addresses concerns related to asset limits that can disqualify individuals from receiving benefits, ensuring that their financial and personal needs are met without compromising their access to essential assistance programs.

If you are considering setting up a Henson Trust or have questions about how this trust can benefit your loved ones, please reach out to our Associate Lawyer, Muhammad Wajahat Faizan, at mwfaizan@kormans.ca.

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M. W. Faizan is an Associate Lawyer at Kormans LLP. You can reach M. W. Faizan here: mwfaizan@kormans.ca.

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