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Henson Trusts: Recognized and clarified by the Supreme Court of Canada
February 11, 2019
Andrea Tratnik, Estate Planning Lawyer, Beard Winter LLP
A Henson trust is a type of trust often used to benefit persons with disabilities who are receiving means-tested social assistance such as income support through the Ontario Disability Support Program (ODSP). The trust is designed to ensure that the beneficiary’s interest in the trust is not considered an asset when determining the beneficiary’s eligibility to receive support. Its name originates from the 1989 Ontario Court of Appeal case Ontario v Henson, (1989) OJ No 36 ETR 192 (ONCA).
The SCC’s decision in SA was important because it confirmed that a Henson trust is a valid estate planning tool, and it clarified that the effectiveness of such a trust depends on the following:
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Terms of the trust
The SCC confirmed that for a trust to be a Henson trust, it must include certain terms: (i) the trustees must have the complete and unfettered discretion in determining whether to make distributions to a beneficiary; (ii) the beneficiary cannot have any right to compel a distribution of funds from the trust; and (iii) the beneficiary cannot unilaterally collapse the trust.
The absolute discretionary nature of the trust ensures that the beneficiary has no control over nor vested interest in the trust fund, but rather only a “mere hope” of receiving a distribution. The result is that the trust itself is not an asset of the beneficiary. Only distributions actually paid out from the trust would be considered an asset/income of the beneficiary.
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Terms of the social assistance program
The SCC pointed out that the SA decision should not be taken to suggest that an interest in a Henson trust can never be treated as an asset for any purpose whatsoever. Whether it is considered an asset will vary among social programs and will depend upon the specific rules and regulations governing eligibility for each social program. It will also depend on the contractual terms applicable to each program.
This means that certain programs could tailor their requirements to ensure that an interest in a Henson trust is indeed considered an asset for their means-based eligibility test. Fortunately, Henson trusts are expressly recognized by the ODSP as a non-asset for eligibility purposes. See its Income Support Directive 4.7: Funds held in trust.
Overall, SA is a positive decision that provides helpful guidance and confirmation regarding the use and effect of properly drafted Henson trusts.