Wills, Estates & Trusts
Henson Trusts
Wills, Estates & Trusts
Henson Trusts
Henson Trusts are sometimes referred to as Absolute Discretionary Trusts in Canada. They are designed to financially benefit those who are disabled. The family members of the disabled person can set up this trust to benefit them financially down the line. However, the Henson Trust is very different from other trusts in the sense that the beneficiary does not hold any ownership whatsoever over the trust. This means that this property will not be considered an asset when determining eligibility for disability benefits programs, such as the Ontario Disability Support Program (ODSP). Contact our Wills and Estate lawyers if you are planning to set up a Henson trust for a dear family member.
What are the main characteristics of a Henson Trust?
Some of the main characteristics that set a Henson Trust apart from other trusts are as follows.
Discretion:
As mentioned above, the Henson Trust is also known as the Absolute Discretionary Trust. Henson trusts offer the highest level of discretion in the sense that the trust stays fully in control of the trustee. The beneficiary does not have any say in the distribution of the income to them or over the assets of the trust. Henson trusts are not considered as assets when considering the eligibility of the beneficiary for the Ontario Disability Support Program (ODSP).
Complete decision-making authority of the trustees:
The trustees of a Henson Trust enjoy complete decision-making authority over the matters of the trust, including, in some cases, when and how much should be transferred to the beneficiary as payments. This fact might put off some of the families or well-wishers from setting up such a trust in the first place. But it is worth noting here that if the beneficiary were to retain control over the trust, that would put the trust up for consideration as an asset when checking the eligibility for government-funded disability benefits programs.
Accumulation period:
The accumulation period is the total period of time after the death of the testator, during which the trust is allowed to accumulate the generated income into the capital of the trust. After the accumulation period, any further generated income cannot be added to the capital any longer. All further income generated every year must be distributed to the beneficiary in that year itself. In Ontario, the accumulation period for Henson Trusts is 21 years.
How can our Wills and Estate lawyer help you?
Legal advice on choosing the right trust for your requirements.
As mentioned above, a Henson trust has some unique characteristics, which make it suitable in certain situations but unsuitable for others. Our Wills and Estate lawyer will be able to recommend whether such a trust is indeed the right option in your case.
Helping you find the right trustees.
The role of the trustee in a Henson trust is so important that our Wills and Estate lawyers always advise the families to appoint multiple trustees in place of one. Also, it is better to provide provisions for the appointment of successors or alternate trustees, considering the long duration involved. There is also the option of appointing professional trustees, such as a law firm.
Legal support in setting up the trust.
If a Henson trust is indeed what is required in your case, then it must be set up in a way that does not disqualify your loved one from receiving the ODSP benefits if needed. Also, a Henson trust may be set up in different forms depending on the requirements.
We can Help
With the legal support and guidance of our lawyers, you will be able to secure the future of your loved one and make the task of the trustee much easier in the long run with a properly set-up trust. Reach out to our Wills and Estate lawyers if you are planning to set up a Henson trust or a regular trust to safeguard your loved one’s future.
Frequently Asked Questions
What is the disadvantage of a Henson Trust?
Henson Trusts aren’t for everyone. The trustee retains complete control over the assets of the trust and how the funds are distributed to the beneficiary. Therefore, they are only suited to beneficiaries who cannot manage their own finances. It is best to consult with our Wills and Estate lawyers to figure out if indeed the Henson trust is the best option in your case.
What is the 21-year rule for the Henson Trust?
This is a reference to the legal requirement in most provinces for the accumulation period of the trust. For example, in Ontario, the trust is allowed to accumulate income into the capital for a period of 21 years after the passing of the testator. But once this 21-year accumulation period is over, the income generated can no longer be added to the capital. Further income generated every year must be distributed to the beneficiary in that year itself. Most Henson trusts will either specify how the income must be distributed at this stage or will leave this matter to the trustees to decide. For example, suppose the trustee is worried that distributing the income to the beneficiary might disqualify them from receiving disability benefits. In that case, the trustee might exercise his right to distribute the income to another family member.
Does inheritance affect ODSP?
Yes, the beneficiary might either see a reduction in the benefits amount or lose the benefits altogether. Consult with our Wills and Estate lawyers with the specific details of your case to find out how your recent inheritance might affect your ODSP payments.
Will I lose my disability payments if I receive an inheritance?
There is a possibility that your disability payment will be reduced or discontinued if you inherited a substantial amount of assets. However, please note that the ODSP mentions a list of exempted assets for considering the eligibility criteria for the scheme. There are also steps you can take to ensure that you remain eligible. For example, your principal residence is already exempt from being counted as an asset for ODSP eligibility. If you recently inherited another house, you must prove that you are actively trying to sell this home to maintain your eligibility. Please consult with our lawyer to figure out what the impact of your recent inheritance will be on your disability payments.
What assets are exempt from ODSP?
Under the Ontario Disability Support Program (ODSP), certain types of assets are excluded from consideration for eligibility to receive the benefits. Some of the major asset exemptions are as follows.
- Principal residence: Only the house currently owned and used as a residence by the beneficiary.
- Vehicle: Only one vehicle that you use for your regular commute will be considered here.
- Received child support payments.
- Payments from trusts.
- Business loans.
- Tools of the trade: Any equipment you use for your work, such as farming equipment or your computer, will also be exempt.
- Donations from charitable and religious organizations.
These are just some of the exempted assets when considering eligibility for the ODSP.
