Providing support for adult children with a disability can be a difficult task, as treatment and personal support can be expensive and may be required for the rest of their lives. Of special concern for many parents is ensuring there is a mechanism in place to provide support to their child after death. Siblings may be counted on to provide a certain level of support, but parents may be reluctant to saddle their children with the financial responsibilities of caring for a brother or sister who isn't fully capable of looking after themselves. Also, as a parent, you may be concerned your child may not be capable of effectively managing a financial resource, such as an inheritance, without adequate supervision. Finally, the child may rely on government social assistance, and there are special considerations to ensure these social assistance benefits are not adversely affected by their estate planning. This article will explore how a Henson Trust can help plan your estate.
Ontario Disability Support Program
The Ontario Disability Support Program (ODSP) provides benefits to adults who need financial support and who the Ontario government has certified as having a disability. Benefits of the program include a basic income, as well as some health benefits and disability related support,including a drug card and dental card. ODSP also provides employment support, although people who receive ODSP benefits are not required to work to receive the benefits. To receive payments under ODSP, a recipient must be 18 years of age, live in Ontario, be a person who is defined as having a disability and have insufficient means (income and/or available assets) to support themselves.
If a person is receiving ODSP benefits and is left an inheritance,the inheritance may be considered an asset, which could potentially disqualify the person from receiving ODSP benefits unless special provisions are made.Under the current rules, inheritances of $100,000 or less are exempt assets, provided they are transferred to a Support Trust for the benefit of the ODSP recipient within six months of the testator's death, and provided that no more than $6,000 per year is paid from the Trust to the ODSP recipient.
When creating an estate plan to assist a disabled child,establishing a Henson Trust as part of your plan will allow the child to receive additional financial support without running afoul of the eligibility requirements of ODSP.
What is a Trust?
A Trust is an arrangement where the assets of an individual are transferred to another person or institution, to be managed for the benefit of another individual. The party who manages the assets is called a trustee, and while the trustee is the legal owner of the transferred property, the trustee is required to always act in the best interests of the party for whom the Trust is established, who is known as the beneficiary.
What is a Henson Trust?
A Henson Trust, also referred to as a Discretionary Trust or an Absolute Discretionary Trust, is designed to benefit a recipient of ODSP benefits by providing them with financial assistance without impacting their entitlement to collect government benefits. It is referred to as a Discretionary Trust because the trustee has absolute discretion in determining how and when to use the assets for the benefit of the ODSP recipient. This type of Trust ensures the beneficiary will retain his or her entitlement to ODSP benefits because the Trust capital is not considered to be his or her property, while preserving the ability to derive funds from the Trust.
The Henson Trust has its origins in Guelph, Ontario. In the 1980s, Leonard Henson had a daughter named Audrey who had a developmental disability. Audrey lived in a group home managed by the Guelph Association for Community Living. Audrey's expenses were managed primarily through an allowance she received through the Family Benefits Act (FBA), the precursor to ODSP Leonard's wife had predeceased him and he had no other family, so Leonard sought to provide quality of life enhancements for his daughter after his death without impacting the receipt of social assistance on which she relied for her care. Leaving his estate outright to Audrey would not have been to her benefit, as this would result in her assets exceeding the allowable limits which were set out in the FBA.
Leonard established an Absolute Discretionary Trust in his Will which appointed the Guelph Association for Community Living as trustee and Audrey as beneficiary of the Trust. The Association was to have absolute discretion over how and when to distribute the assets to Audrey, and in what quantity. The Will also stated when Audrey died,any income that was not distributed to her during her lifetime was to be accumulated and the capital of the fund was to be transferred to the Association. Upon Leonard's death,the Ministry of Community and Social Services, which administered the FBA, took the position that the Trust was a "liquid asset" and Audrey had in fact inherited her father's estate. As a result, Audrey acquired assets which were in excess of the permitted exemption, and the Ministry of Community and Social Services terminated Audrey's disability benefits.
The Social Assistance Review Board reversed the Ministry's decision and the Minister appealed to the Divisional Court, which dismissed the appeal. The Divisional Court held that Audrey Henson did not have a beneficial interest in the Trust capital, since the Will gave the trustees absolute and unfettered discretion and Audrey could not compel the trustees to make payments to her. The Ministry further appealed this decision to the Court of Appeal, which also dismissed the appeal. These decisions effectively endorsed the mechanism by which Leonard Henson sought to provide for his daughter after his death, with the result that Trusts established for this purpose are now called Henson Trusts.
Since that decision, the legislation has changed, but the same rules apply to individuals currently receiving ODSP benefits. In 2005, the Social Benefits Tribunal confirmed that an individual receiving ODSP could be supported by money in a Henson Trust (which was created in a Will). Given that the individual could not force the trustees to provide any money from the Trust, the money in the Trust was not an asset, and the individual could still continue to receive ODSP benefits.
When establishing a Henson Trust, it is very important to ensure compliance with all necessary elements, as a Trust that is improperly set up may not provide the intended benefit and could possibly cause the recipient's benefits to be temporarily curtailed or revoked.
Marcia A.Green is an associate lawyer with the Ottawa law firm of Nelligan O'Brien Payne LLP (www.nelligan.ca) and a member of the Wills and Estates Practice Group. Nelligan O'Brien Payne gratefully acknowledges the contribution of Eric Kerson, articling student, to this article.
[This article was originally published in the January/February 2016 edition of Fifty-Five Plus Magazine.]
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