BY: VALERIE DYE
In Estate planning it is important to give special consideration to the needs of a disabled child or relative. This is so particularly if the disabled person is a recipient of disability benefits from the Government. Under the Ontario Disability Support Programme (ODSP) anyone who has assets in excess of $5,000 may not be eligible to receive disability payments. As a consequence, if a parent leaves a gift in his will which is valued more than $5,000 this will prevent the disabled person from receiving benefits under the ODSP. The ODSP regulation provides for certain exemptions regarding what is considered an asset. For instance, an interest in a principal residence or tools of the trade may not be considered as assets. Furthermore, the ODSP allows disabled persons to benefit from assets left in a trust or cash payments from a life insurance policy. However, the value of such assets cannot exceed $100,000.
As a result of the requirements of the ODSP, a disabled beneficiary who has left assets under a will must deplete those assets to a value of less than $5,000 before that person can receive disability payments under the ODSP.
Although the ODSP stipulates that assets for the disabled beneficiary left in trust cannot exceed $100,000 there is one type of trust that makes it possible for a parent or relative to leave assets in excess of $100,000 for the disabled beneficiary. This instrument is called the Henson Trust and is named after the case involving the Ontario Ministry of Community and Social Services and Henson. In that case, the Court of Appeal of Ontario ruled that where a father (Mr. Henson) had set up a discretionary trust for his disabled daughter the money in the trust did not count as assets owned by the daughter and therefore should not prevent her from receiving disability payments.
The difference between the Henson Trust and other trusts which are for the benefit of disabled persons is that the Henson Trust is completely discretionary. In other trusts, the disabled person is the beneficiary under the trust which is set up specifically for the maintenance of that disabled person and the trustee has no discretion to withhold funds from the disabled person. Under the Henson Trust, the trustee has total discretion whether or not to provide the disabled person with benefits and if so how much benefits would be provided. The disabled person cannot demand payments under the Henson Trust. As a result of the discretionary nature of the trust, it cannot be said that the disabled person ‘owns’ any assets which would disentitle him from disability support payments from the government.
It is therefore important to pay attention to the wording of the trust when it is being set up.
Although Henson Trusts are permissible for the discretionary maintenance of disabled persons the ODSP places a limit on the number of assets that can be paid out of all trusts, insurance policies, gifts or any other voluntary payments. Such payments cannot exceed $6,000 per year.
Henson Trusts can be created either as part of a will or it may be created as an inter vivos instrument during the life of the person transferring the assets to the trust. For instance, a parent receiving a divorce settlement may wish to transfer some of the money to a Henson Trust for the benefit of a disabled child.
While Henson Trusts are an important tool for providing for disabled beneficiaries it should be remembered that it is a discretionary trust. The trustee should, therefore, be chosen very carefully and should be someone who is honest and trustworthy.