A Henson Trust, also known as an “Absolute Discretionary Trust,” is a useful tool when estate planning for a beneficiary that is living with a disability. This Trust allows testators to plan for the care of their loved ones, while preserving their beneficiary’s rights to continue collecting government benefits, like the Ontario Disability Support Program (“ODSP”).
What sets this Trust apart from others is one key feature: this Trust only provides the beneficiary with a hope, and not an enforceable right, to distribution from the estate. This means that 100% of the power rests with the appointed Trustee. Surprising right? This means that whoever is selected in the Will to be the trustee of a Henson Trust, must be someone the testator really trusts (no pun intended!). Trustees of discretionary trusts, such as this one, have absolute discretion over how the trust is used to assist and care of the beneficiary, so it’s vital that the testator choose wisely.
You may be wondering why this Trust gives absolute power to the Trustee, and why that’s a good thing. It’s simple really – it’s because the total combined amount of a trust, plus the cash surrender value of any life insurance policies, owned by an ODSP entitled beneficiary must not exceed $100,000. These are considered “assets” of the beneficiary and can negatively impact the beneficiaries ODSP entitlements. A true absolute discretionary trust, like a Henson Trust, is not considered an asset for ODSP purposes, since absolute discretion lies with the trustee and not the beneficiary. This means that the monetary value of this type of trust can be over $100,000.
Beware! Payments from this Trust to the beneficiary cannot total more than $10,000 within a 12-month period – anything over this amount and the beneficiary risks deductions from their ODSP benefits.
Remember that while a Henson Trust can help in safeguarding the ODSP benefits of a beneficiary, because of the absolute discretion provided to the Trustee, the right Trustee must be appointed for the job!
Robin K. Mann, JD, Associate Lawyer