Introduction: What is a Henson Trust?
A Henson trust is a specialized legal arrangement designed to provide supplemental financial support to individuals with disabilities without jeopardizing their eligibility for income-tested government programs such as the Ontario Disability Support Program (ODSP). These trusts aim to safeguard both the financial future and the government benefits that disabled beneficiaries rely upon.
By separating the trust assets from the personal assets of the beneficiary, a Henson trust ensures the beneficiary remains within the acceptable asset and income limits required by various government programs. The trust takes its name from the landmark Ontario Court of Appeal decision in Ontario (Ministry of Community and Social Services) v. Henson (1987).
Key Features of a Henson Trust
To ensure the trust’s effectiveness, it must meet specific legal requirements:
- Absolute Trustee Discretion: The trustee must have complete discretion over when and how trust funds are distributed to the beneficiary.
- No Beneficiary Control: The beneficiary cannot demand distributions from the trust or collapse it.
- Irrevocable Nature: The trust should be structured so the beneficiary has no direct claim to the trust's assets.
These conditions are critical to ensure the trust assets are not deemed part of the beneficiary's personal resources, thus protecting their eligibility for government support.
Recent Developments: Supreme Court of Canada’s Guidance
The 2019 Supreme Court of Canada decision in S.A. v. Metro Vancouver Housing Corp. reaffirmed the legitimacy of Henson trusts but provided additional clarity on their usage. In this case, the Court ruled that a properly structured Henson trust is not considered an asset for the purposes of means-tested social programs, provided the program’s eligibility rules do not specifically include Henson trusts as assets.
The Court highlighted two important considerations:
- Proper Trust Structure: For a Henson trust to be excluded as an asset, it must adhere strictly to the principles of trustee discretion and beneficiary non-control.
- Program-Specific Rules: Government programs can include specific language in their eligibility criteria to treat Henson trusts as assets. For example, ODSP recognizes Henson trusts as non-assets under its current rules, but this could change if new policies are introduced.
This decision underscores the importance of staying informed about changes in eligibility rules for government programs.
Advantages of a Henson Trust
- Preservation of Benefits: Ensures the beneficiary continues to receive income-tested government support.
- Supplemental Income: Provides financial support for medical care, education, or other personal needs not covered by public programs.
- Protection of Assets: Shields trust assets from creditors or claims against the beneficiary.
Challenges and Considerations
While Henson trusts are a powerful tool, they require meticulous drafting and planning to comply with legal and program-specific requirements. For instance, any misstep in structuring the trust could result in the assets being considered part of the beneficiary’s personal estate, jeopardizing their government benefits.
Tax Planning for Henson Trusts
A well-drafted Henson trust can also be optimized for tax efficiency. Strategies may include:
- Maximizing Deductions: Ensuring trust income is distributed in a tax-efficient manner.
- Utilizing Disability Tax Credits (DTC): Coordinating the trust's income distribution with the beneficiary’s DTC to minimize tax liability.
Trust Tips: Seek Professional Guidance
Given the legal complexities and the evolving nature of government policies, it is crucial to consult experienced tax and estate planning professionals when setting up a Henson trust. Our firm specializes in structuring Henson trusts to ensure compliance with current laws and program guidelines while maximizing financial benefits for beneficiaries.
Conclusion
A Henson trust is an invaluable tool for families seeking to provide financial security for loved ones with disabilities. By protecting the beneficiary’s eligibility for government support and ensuring a steady source of supplemental income, a properly structured Henson trust offers peace of mind and long-term stability.
If you are considering establishing a Henson trust or need advice on an existing one, our experienced tax and estate planning professionals are here to guide you through the process.
This article is written for educational purposes.
Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.
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