Henson trusts have been used since 1989[1], for the benefit of those who receive government benefits such the Ontario Disability Support Program. The Supreme Court of Canada considered the Henson trust for the first time almost three decades later. The Court’s decision in S.A. v Metro Vancouver Housing Corp[2] confirmed the validity of the Henson trust as an estate planning tool and clarified when they can be effective to meet client goals.
What is a Henson trust?
A Henson trust can also be referred to as an absolute discretionary trust. The Supreme Court defined it a trust that is “settled for the benefit of a person with disabilities who relies on publicly funded social assistance benefits”.[3] Henson trusts preserve and maximize a disabled individual’s entitlement to receive means-tested government benefits, while maintaining their ability to also benefit from other assets.
The disabled beneficiary technically has no interest in Henson trust funds. The trust fund is not included when calculating whether a recipients assets are beyond the limits of the disability benefit program. A properly drafted Henson trust will ensure that the disabled beneficiary can maintain government benefits as long as they are available.
What are the features of a Henson trust?
The Supreme Court of Canada described two essential features of a Henson trust.
- The trustees’ exclusive discretion to make distributions
The beneficiary must have no enforceable right to receive any of the trust’s income or capital. The disabled beneficiary’s interest in the trust should be “akin to a mere hope that some or all of [the trust’s] property will be distributed to [the beneficiary] at some point in the future”.[4] The trustees should have absolute discretion on if or when the disabled beneficiary receives any benefit from the trust.
- The beneficiary’s inability to unilaterally terminate the trust
The beneficiary must be prevented from terminating the trust under the rule in Saunders v Vautier.[5] This rule permits beneficiaries of a trust to terminate it and demand that the trustee transfer the entire trust capital to them. Beneficiaries can only make such a demand if they are absolutely entitled to all the rights of beneficial ownership in the trust property. For a valid Henson trust, the beneficiary’s interest in the trust cannot be absolute.
Effectiveness of Henson Trust?
The effectiveness of Henson trusts depends on the terms of the specific social benefits program. It is important to analyze the terms of the eligibility criteria associated with the social benefit program in question to understand how an interest in a Henson trust may affect a disabled beneficiary’s entitlement to benefits.[6] This applies to both government disability assistance programs and private assistance programs.
[1] Ontario (Director of Income Maintenance, Minister of Community & Social Services) v. Henson 1989, 36 ETR 192 (Ont C.A.)
[2] S.A. v Metro Vancouver Housing Corp., 2019 SCC 4 [“S.A.”]
[3] S.A. at para 2
[4] S.A. at para 39
[5] (1841) 4 Beav. 115
[6] S.A. at para 55