A special trust
Born out of a landmark court case, the "Henson" trust has become a way for parents to leave their estate to a child with a disability without impacting their benefits.
By Lisa Machado
When Leonard Henson died and left his estate to his daughter Audrey more than a decade ago, he probably had no idea it would take a court decision to ensure that his daughter would continue to receive Ontario Disability Support Payments (ODSP).
In an effort to bypass a government rule stipulating that once a person with a disability receives an asset, their benefits are reduced or eliminated, Henson's lawyer created an absolute discretionary trust. This meant that the money in the trust would be paid out at the discretion of the designated trustee, not the beneficiary - the child did not own these assets. Despite this significant detail, the government challenged the trust on the grounds that the Guelph, Ont. woman did in fact own an asset and was not eligible for her total disability benefits.
This case was taken to court to fight the government's decision and was won, based on the ruling that an absolute discretionary trust preserves the right of a child with disabilities to receive benefits. (A subsequent appeal by the government was dismissed.) And so, the absolute discretionary trust - nicknamed the "Henson" trust in Ontario - was popularized as a strategy for parents to ensure that their children with disabilities would have access to their estate without losing their disability support payments.
However, this trust in not used nearly enough. This is mostly because many lawyers aren't aware of the details of the "Henson" case says Kenneth Pope, an Ottawa-based lawyer. "Lawyers look up 'disability' in the precedents manuals and create a trust arrangement that's simply structured to help a child with a disability," he says. "What these precedents don't take into account is that the trust needs to be worded so the child is deemed not to have received the inheritance personally and therefore can still receive benefits."
Also called a non-vesting clause, this wording is crucial to properly setting up an absolute discretionary trust, says Pope. "Unfortunately, not many lawyers are aware of how important this wording is, " he says. "The client has to come right out and say that the asset they are passing on doesn't vest in the beneficiary, that the child will not legally own this asset."
An absolute discretionary trust makes sense for many parents who are caring for children with special needs. Not only does it allow the child to continue receiving benefits, and be included in their parent's wills, but there aren't any restrictions on how much can go into the trust or how it can be used for the child.
The above is an excerpt taken from an article initially published in the February 2001 edition of Advisor's Edge Magazine.
