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Sunday, May 12, 2019

Henson trusts upheld by the Supreme Court of Canada

For a number of years, we lawyers have been using a specific type of trust known as a "Henson trust" when doing estate planning that involves a disabled adult.

A Henson trust is a fully discretionary trust. In other words, the person for whom the money is held does not have the legal right to demand anything from the trust. The trustee has full control over when - and, most importantly, IF - any funds are paid from the trust to the beneficiary. This type of trust is key because a disabled person who receives provincial government disability benefits will not be cut off from those benefits because of the Henson trust. Most other types of trusts would result in the person losing those benefits.

You can see how this could be problematic for the disabled person and extremely stressful for the parents of that disabled person who are trying to ensure the future care of their child. Most provinces have quite low thresholds for assets and will not provide benefits to anyone whose assets exceed those limits. This isn't a problem if you have millions of dollars to leave your child; you know his or her needs will be met without the provincial benefits. But most of us aren't in that situation.

Let's say, for example, that Betty is a disabled adult. She is allowed to own $10,000 before losing her support benefits. Her parents pass away and leave her $75,000. Betty now has more than the limit so she loses her benefits. She's allowed to own a home without losing benefits, but her inheritance isn't enough for that. She lives on her $75,000 until it is gone. Then what? Now Betty has to re-apply and re-qualify for the benefits. This could mean a gap in her income until benefits are approved, and if she does not have an adult guardian to replace her deceased parents, this could be very difficult.

If the same $75,000 had been held in a Henson Trust, the funds could have lasted for years, supplying Betty with everything from new winter boots to haircuts to more help around the house.

Recently there has been some good news about Henson trusts. They have finally been considered by the Supreme Court of Canada and upheld as being valid trusts that do not interfere with provincial benefits. This will come as a relief to parents who have set up these trusts in their wills but who worry that one day the trust might be challenged and fall apart. Now we have one less thing to worry about.

To read a recent story about this in the Globe and Mail, click here. To read the Supreme Court of Canada case itself (S.A. vs. Metro Vancouver Housing Corp), click here.

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