In my last blog post, I discussed how a testamentary gift can disentitle a beneficiary from continuing to receive ODSP benefits and even result in a debt owing to the government. In this installment I will discuss the Henson Trust, a relatively straightforward estate planning tool that can assist a testator (the person making/executing a Will) in avoiding these unintended negative consequences for his or her beneficiaries.
Simply put, a Henson trust is a trust in which the trustee has absolute and unfettered discretion over whether, when and how payments are made to the beneficiaries of the trust, including payment of interest on the capital. The term “Henson trust” comes from the Ontario (Ministry of Community and Social Services) v Henson case, in which an ODSP recipient lost her entitlement to benefits after her father made her the beneficiary of an absolute discretionary testamentary trust. In this case, the court held that the trust property should not be considered an asset of the daughter as she did not have the authority to direct the trustees to make payments to her and, accordingly, that she was still entitled to receive benefits.
My previous blog post explained that a testamentary trust is exempt as an asset up to a value of $100,000. However, a Henson trust is exempt from consideration as an asset regardless of its value.
Returning to the example provided in my last post, had John Doe’s father consulted with an estates lawyer, his Will could have been drafted such that the $150,000 was placed into a Henson trust. The entire $150,000 value would then have been exempt as an asset and John would have remained eligible to continue receiving income support from ODSP, despite the existence of the trust.
It should be noted that while the Henson trust is a useful tool in an estates lawyer’s toolkit, the drafting must be precise. The Will must make it explicitly clear that the beneficiary cannot direct the payment of trust funds; this exercise must be entirely discretionary on the part of the trustee(s). There have been a number of cases since theHenson case in which testators have not been explicitly clear on this point and the beneficiary has become disentitled to benefits as a result.
A Henson trust can be a useful tool in ensuring that the wishes and intentions of a testator are realized. However, as is the case with many estate planning options, the knowledge and expertise of an estates lawyer is necessary to ensure that it effectively protects the long-term interests of an ODSP-entitled beneficiary.
On a final note, the consequences that accompany an outright gift to an ODSP recipient may also serve as a motivating factor to draft a Will. If no Will exists at the time of death, the laws of intestacy will govern the distribution of the deceased’s estate and, therefore, a beneficiary’s ODSP entitlement may be sacrificed.