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Use a Henson trust to protect your disabled child’s inheritance

Close up of grown up daughter and older mother connecting hands

People with a disability often qualify for disability benefits from their provincial government. The amount they qualify for usually depends on their level of assets or income.

If you have a child with a disability and plan to leave them an inheritance, setting up a Henson trust for them will help to ensure that they do not lose their disability benefits.

A Henson trust is a fully discretionary trust (that is, the trustee has full discretion as to when and what funds are given to the beneficiary) designed specifically to benefit persons with disabilities. The designated trustee manages the trust assets and seeks to protect these assets (typically an inheritance) from being considered as belonging to the disabled person, so that person remains eligible to collect government benefits and entitlements.

A brief history of the Henson trust

In the 1980s, Leonard Henson created a trust in his will for his disabled daughter, Audrey Henson. The trustee had complete discretion on the amount and timing of any payments to Audrey.

The Ontario government tried to disqualify Audrey Henson from receiving her provincial disability benefits because of the money left to her in the testamentary trust.1 In the end, however, the Court of Appeal ruled in her favour. It determined that the trust assets did not belong to Audrey and she had no right to demand anything from the trust. Given this finding, Audrey could still collect government disability benefits.

How a Henson trust works

Because the trustee has full discretion over trust payments to your child, your child’s interest in the trust is typically not considered an asset that affects their eligibility for provincial disability benefits. The trustee can use the trust funds to pay for any extras that your child requires, within provincial rules, and can keep the bulk of the trust funds intact for any future needs.

A Henson trust can help you strike the desired balance — maximizing the assistance your money can provide to your child after you are gone, while striving to protect their disability benefits as much as possible. You will have peace of mind knowing that your child will continue to receive appropriate support and benefits after your death.

Benefits of a Henson trust

Setting up a Henson trust for your child has several advantages:

  • allows you to use capital — or other assets, including proceeds of permanent life insurance — to fund the trust
  • allows you to authorize a trustee to pay for things your child requires
  • protects your child’s eligibility for future disability benefits by giving the trustee full discretion over trust payments
  • directs the trustee on how to distribute any remaining balance to other beneficiaries at some future point; for example, upon the passing of your child

Choose someone you trust

Your choice of trustee is critical. Make sure this person has the technical ability to manage such a trust, is willing to take the time necessary to assess your child’s needs and is available to provide guidance and support. You may wish to consider the benefits of hiring a professional trustee like MD Private Trust Company as sole trustee or co-trustee with a family member. This will ensure that the needs of your child are always the top priority.

Consult with your MD Advisor* to see if setting up a Henson trust is appropriate for your disabled child.

A testamentary trust is created at the time of death of the settlor (in this case, Leonard Henson), as opposed to an inter vivos trust, which is created during the settlor’s lifetime.

*MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.