Krista Clendenning J.D., T.E.P.
There are typically two key benefits to including a “Henson Trust” in your Will.
But first, what is a Henson Trust? It gets its name from the Ontario case in which a father set up a trust for his daughter with an intellectual disability, Audrey Henson, under his Will. His Will directed that $82,000 from his estate would be contributed into a trust to be managed by a trustee for the benefit of Audrey. Audrey was not in control of the trust and could not demand that funds be used in any particular way. That being said, any funds spent from the trust had to be used for her benefit. The Director of Income and Social Services took the position that the trust funds were liquid assets available to support Audrey and as such put her beyond the liquid asset exemption limit of $3,000 at the time. When the trust was challenged in court, the trust funds were determined not to be liquid assets of Audrey because she was not in control of those assets. Instead, a trustee had the absolute discretion to make payments from the trust. The discretionary structure would allow for Audrey to retain her government benefits and still receive extra support through the trust.
Similar case law exists in Manitoba, the Shelagh Quinn case, in which a mother created a trust for her daughter with Down syndrome. The trust was challenged by Social Services on the basis that the trust funds were a financial resource to Shelagh. Shelagh’s contingent interest in the discretionary trust was determined by the Manitoba court not be a financial resource to Shelagh and therefore did not impact her eligibility for social assistance. On this basis, the discretionary trust remains an effective planning tool for leaving an inheritance to a person on government support in Manitoba.
This brings us to the first benefit of the Henson Trust. Any funds or assets held in a Henson Trust will not disqualify a beneficiary from receiving government support. A beneficiary could have one million dollars or more in a Henson Trust and it will not impact their government housing or income benefits.
It is essential that the trust is purely discretionary. This is why it is also commonly referred to as a “discretionary trust.” An individual or multiple individuals, family member or trust company may be appointed in the role of trustee. The trustee is responsible for receiving the inheritance from the executor of the estate. The trustee then sets up a trust account and is responsible for the investment of the trust money and the spending for the benefit of the beneficiary. The trustee has full discretion regarding when, whether and how the money is spent, that is, so long as the money is spent only for the benefit of the beneficiary (the person with disability or in receipt of government support).
The second benefit is that the management, investment and spending of the money is managed by the trustee. Commonly, but not always, the beneficiary is not equipped to handle the management of a substantial inheritance themselves. The will-maker may feel that the beneficiary lacks an understanding of money concepts, spends impulsively or there is a risk of predatory influence upon the beneficiary. Whatever the reason, if the will maker feels that another individual would be better suited to managing the funds, this may be an added benefit of the Henson Trust.
Key components of these trusts include selecting trustees, considering whether compensation of the trustees is appropriate, setting out the terms for discretionary distribution of income and capital from the trust, and directing what happens with the remainder of the trust if the beneficiary passes away before the funds are exhausted. A decision also has to be made regarding how the trust will be funded. Will the trust receive a share of the residue of the estate, a cash amount or are there special considerations such as holding a home in the trust? The specific terms of the trust should be considered with a qualified estate planning lawyer. The trust must always be tailored to the particular family’s circumstances based on their residence, assets and objectives.