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The Henson Trust: Planning for the Future Care of a Partly-Dependent Child

Caring for a child with abilities that lie outside the norm can be difficult, but it can also be rewarding.

As a partly-dependent child grows into adulthood, social services such as the Ontario Disability Support Program (ODSP) become a crucial aspect of the child’s supporting system, and can help foster a sense of independence.

Inheriting assets from parents or grandparents - while always done with good intent - can be disruptive to that careful balance, since an increase in assets can render the child ineligible for the ODSP.

So, what to do? For the parents and grandparents of partly-dependent children, a tool that ought to be considered is the Henson Trust.

Guelph resident Leonard Henson cared deeply for his daughter, Audrey, who lived in a group home and relied on an allowance from the Family Law Act - now similar to ODSP payments - and on her father’s support.

Leonard carefully planned for the future needs and protection of his daughter by placing a substantial portion of his savings into an Absolute Discretionary Trust before his passing in 1981.

Think of a trust as a tool that separates “ownership” from “benefit”, since this is possible legally. For example, you can give $20 to your brother, and say “you own it, but you can’t use it; you must instead take care of it, and it must be given to my daughter exactly 10 years and 45 days from today”. That is what Leonard did. However, he took it one step further by making it “absolutely discretionary”, which means in the example above, he took out the “exactly 10 years and 45 days from today”. The result, in the example, is that your brother has the full discretion to decide when your daughter gets the $20.

So, an Absolute Discretionary Trust is one regarding which the person setting up the trust - the settlor - has given up all the “strings” of control; and regarding which the person benefiting from the trust - the beneficiary - cannot access at will or based on any condition other than the discretion of the trustee. The trustee, of course, is the person entrusted with the assets in the trust.

Now, back to Leonard’s neat story. The Ministry of Community and Social Services understood the trust he set up to be a gift to Audrey, and so they halted Audrey’s allowance payments. The Social Assistance Review Board reversed the Ministry's decision on the grounds that Audrey did not have direct access to the assets, and as such it shouldn’t be counted as an asset under her ownership. In 1989, this decision was upheld by the Ontario Court of Appeal, and it meant that Audrey’s social assistance payments would continue!

So, when is a gift not a gift and yet the person gifted can benefit from it? When, of course, it is in an Absolute Discretionary Trust.

Audrey’s good fortune created a road map for other partly-dependent children in Ontario, whether their differing abilities be cognitive, developmental, physical, or mental. Such a framework is also available for families in British Columbia, Manitoba, New Brunswick, Nova Scotia, and P.E.I.

The Henson Trust is named after Audrey and continues to provide families with a means of giving a child living with different abilities an inheritance without putting the child’s ODSP supports at risk. Eligibility for ODSP requires an individual to own less than $5,000 in assets - excluding their primary place of residence. Such an extremely low threshold puts partly-dependent persons at risk in the long run, which is why the Henson Trust is such a valuable tool in estate planning.

Now, it isn’t just about the Henson Trust. It’s also about the review of the trust document by the government offices that administer the ODSP. They must assess the trust document, and conclude that it is indeed a “Henson Trust”. This is important since, just as every partly-dependent person is unique, the Henson Trust document drawn up for each is also unique. There simply is no one size fits all. Yet, that unique document must obey some key rules established by the one drawn up years ago by Leonard’s lawyer.

Beyond the government review, it is also about the rules that have been put in place for annual transfers from the Henson Trust. The transfer cap is low, but there are exceptions for attendant care, wheelchair accessibility devices such as ramps, vehicular alterations, and modifications to the home.

Thirdly, it is about who is chosen as a trustee. It is important to identify a good trustee. Someone, or an institution like a bank, that can manage the trust with a clear mind and good character for a long time - until the trust runs out or the beneficiary passes on. The trustee will be responsible for releasing funds, managing and investing assets, and preparing records and tax returns, among other things. The trustee must understand the requirements and limitations of that role, including some knowledge of regulations under the ODSP and the Trust Act.

A Henson Trust is often established in a Will, but it can be created at any time. The benefit is that a Will is activated after the settlor passes on. Trusts that are activated before the settlor passes on are taxed at a higher rate!

If you believe that a Henson Trust may be a good option for you, and you are resident in Ontario, we can readily assist as estate planning lawyers. We have offices in Ottawa and Toronto, and can provide services in most other parts of Ontario. We can be reached by phone at 1-888-59-WILLS. There are a number of ways in which leaving an inheritance to a child with different abilities can unintentionally go awry. We are committed to ensuring that does not happen to your child or your family.
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What, exactly, is a trust?

A trust is an arrangement between three entities - the grantor (or settlor), the trustee and the beneficiary.

The process is initiated by the grantor - the individual who wishes to give away assets by placing the assets in a trust. The grantor places the responsibility for those assets in the hands of the trustee.

The trustee is accountable for ensuring that the assets are received by the beneficiary in the manner intended by the grantor, which is outlined in the trust document.

Here is where it can get interesting - in some cases, the grantor and the trustee may be the same individual. So, a person can say to herself or himself - “I no longer own this property for myself, I now own it only to take care of it for the beneficiaries.”

In other cases, the trustee may be a trusted person or persons, or a trusted institution such as a bank.

There are two main categories of trust. The first is an inter vivos trust, also called a living trust, established during the life of the grantor with the assumption that the grantor will be able to control or witness the distribution of the assets in the trust. In most instances, the terms of such a trust may be altered at any time at the will of the grantor, and so it is typically termed “revocable”.

The second type is called a testamentary trust, which is usually created as a part of the grantor’s Will. Since it “kick-starts” upon the death of the grantor, it is always “irrevocable”. Once kick-started or established, an irrevocable trust is nearly impossible to change.

The above two categories have many sub-categories. So,

  • a spousal trust ensures that any income generated by the assets in the trust go to the surviving spouse following the death of the grantor, with the principal often being passed on to the children;

  • a real estate investment trust (REIT) is a great vehicle for storing assets such as rent payments; it often comes in the form of large holdings that get traded on the stock exchange, but there is no reason why a landlord with a few holdings can’t set up one for the next generation;

  • a charitable remainder trust is similar to the spousal trust, with the twist that instead of the children, the principal goes to a charity after the surviving spouse (or anyone else set up to benefit from the income) passes on.

There are many others.

Why set up a trust?

The main reason for creating a trust is to ensure that the assets within it will be managed in a specific way, and that such management will be guaranteed even following the death of the grantor.

This can be especially useful when the beneficiary is very young, irresponsible, or otherwise unable to manage the assets alone. See our post about Henson Trusts for more information about leaving assets to a person living with abilities that are reduced or otherwise outside the norm.

Another reason to establish a trust is that the assets in the trust will bypass the probate system following the death of the grantor. This accomplishes three things:

  1. it provides a great deal of confidence and ease in the transfer of assets, compared to the probate system;
  2. it sidesteps probate court fees, which can add up - in Ontario it is $250 for the first $50,000 of an estate and $15 for each additional $1,000, with no upper limit; and
  3. it keeps the transfer of assets highly private, which a basic Will cannot do since probate is a public, court process.

Placing assets in a trust is a great method of protecting an inheritance and ensuring that it is directed to the intended beneficiary.

Who needs a trust?

Many people could use a trust.

As the number or volume of your assets increase, or the complexity of your estate deepens, establishing a trust becomes an increasingly attractive option. So, trusts are not limited to the wealthy. They should be considered by anyone developing an estate plan as a vehicle for simplifying the distribution of assets, or sidestepping thorny family issues by targeting a portion of the estate for transfer to a specific beneficiary in a carefully controlled manner.

If you feel as though a trust may be a good option to include in your estate plan, and you are resident in Ontario, we can readily assist as estate planning lawyers. We have offices in Ottawa and Toronto, and can provide services in most other parts of Ontario. We can be reached by phone at 1-888-59-WILLS. Trusts can be complicated. It is in the best interest of the grantor, trustee and beneficiary that the trust document is - with an eye to the legal pros and cons - an accurate reflection of all that is intended.
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Your spouse can ignore your Will! Yes, you read that right.

A Will. The final testament of everyone who has lived. The final word. The final say. Sacrosanct. Unchangeable. To be respected. Right?

Not quite. A Will can be ignored for a number of reasons. Among them, perhaps the most eyebrow-raising is that a spouse can opt to ignore the contents of a Will!

Gimme 50
Following the death of a husband or wife, there is a 6 month period within which the surviving spouse can either accept the contents of the Will, or elect to receive a 50% share of the “net family property”. So, the surviving spouse can simply assess which option would deliver a greater portion (or all) of the assets available.

This ability is similar to the rights of a spouse following a divorce - in which the “net family property”, the assets accumulated over the course of the marriage, is divided pretty much 50/50. It is based on the same law - Section 6 of Ontario’s Family Law Act.

The ability is referred to as a “spousal election.”

What if the spouse died without a Will? Well, in that event, the law (Part II of the Succession Law Reform Act) sets out a formula for the distribution of the assets of persons that die “intestate” - that is the legal jargon for dying without a Will. According to that formula, the surviving spouse is entitled to the first $200,000 of the deceased’s estate, with any remainder to be divided up based on whether or not the deceased had children, and if so the number of children. This is called the “entitlement”. Here is where it gets interesting - the surviving spouse can still choose between this entitlement and a 50% share of the net family property!

You Can’t Pick Cherries
It should be noted that this is strictly “either / or”. The surviving spouse can’t opt for a spousal election partly, and for the Will partly; or opt for the entitlement partly, and for the Will partly. In essence, there is no cherry picking. There is an exception to this rule though - the Will of the deceased can specifically state that the surviving spouse’s entitlement in the Will is to be added to the amount the surviving spouse is entitled to under spousal election.

More on that “Net Family Property”
To clarify the amount of money a surviving spouse may be entitled to under spousal election, Section 5(2) of Ontario’s Family Law Act states that “if the net family property of the deceased spouse exceeds the net family property of the surviving spouse, the surviving spouse is entitled to one-half the difference between them.”

To provide an example of what this might mean, let us assume that Samantha passes away with a net family property of $1,300,000. Her surviving husband, Mario, has a net family property of $500,000. The difference between them is $800,000. They live in Ottawa, so Ontario Wills & Estates Law applies. Mario would be entitled to a claim against Samantha’s estate for $400,000. This is also referred to as an equalization payment because the net family property of both Samatha and Mario would be $900,000 following the payment.

The net family property, for each spouse, is the amount accumulated over the course of the marriage minus the amount brought into the marriage, and minus any debts. It gets quirky though. A number of assets are excluded from the calculation, such as gifts and inheritances, insurance proceeds and some court settlements.

So, a surviving spouse can ignore a Will, and opt for a spousal election instead, but doing so can get pretty labyrinthine pretty fast. Think this might be your situation now or some day? Best to retain a Wills and Estates lawyer before you make the decision - the lawyer can help calculate your net family property and determine the best choice in your particular situation.

About That Deadline
You noticed the bit about the 6 months, eh? Well, it is a rigid deadline, until it isn’t. In essence, a judge can move the deadline if there is a valid reason to do so. For example, if the execution of the estate was delayed and that was not the fault of the surviving spouse. After all, how can you decide between two options if you have no clue about one of the options?

Two fairly recent cases in Ontario reinforce this possibility. They are Mischuk v. Mischuk, 2013 ONSC 4122 and Aquilina v. Aquilina, 2018 ONSC 3607. In both cases, the application for an extension was heard within the 6 month time period following the passing of the deceased and was granted.

There is also a more recent court case in Ontario - Lundy v. Lundy, 2017 ONSC 2101 - which demonstrates that an extension of the period within which a living spouse may seek a division of net family property will not be granted when the application is made outside of the initial 6 month period.

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Estate Planning and the Blended Family - four things to keep in mind.

A picture of the modern family can sometimes be far removed from the image of the nuclear family from yesteryears - mom, dad, 2.2 kids, a dog, and a white picket fence. Today, it is gladly accepted that families come in many configurations. They are all beautiful, yet in estate planning, some present more challenges than others.

Consider the blended family, bringing together children from previous marriages, and creating a joy so unique, it has its own postal code. For the testators - that is, mom and dad who have brought their children together, estate planning tends to be the time to step back and consider asset protections for biological children.

A core principle of Ontario's Family Law Act is that marriage is an equal economic partnership. As a result, upon the death of a spouse, the surviving spouse has certain rights, among them the right to seek what essentially amounts to 50% of the assets accumulated over the course of the marriage, regardless of what the Will of the dead spouse has stipulated. For testators in blended families, this can cause a fair amount of consternation.

Let’s consider the made-up situation of the Imagines. Daniel and Sandra Imagine married 10 years ago, coming together along with Daniel’s two children from a prior marriage [Kevin (now 17) and Tamara (now 19)], and Sandra’s two children from a prior marriage [Cassie (now 14) and Hannah (now 12)]. They live in Toronto, so Ontario Wills and Estates Law applies. At the time of their marriage, Daniel had $350,000 in assets while Sandra had $50,000. They bought a home, with each contributing $50,000 towards the purchase. Over the course of their marriage, the couple have accumulated $800,000 in assets, with the lion’s share of that - $600,000 - coming from a business started and operated by Sandra. It has always been Sandra’s thinking that through the business, she would be in a position to leave Cassie and Hannah with exclusive inheritances that would rival what Daniel can bequeath to Kevin and Tamara. Is she mistaken in her thinking?

The short answer is “yes”, unless she takes estate planning steps beyond simply getting her Will drafted and executed. Should she predecease Daniel, she could leave the $600,000 she has accumulated to Cassie and Hannah through her Will, but Daniel can simply - and legally - ignore that Will and take half of that amount since it was accumulated over the course of their marriage. Considering the reverse, should Daniel predecease her, she wouldn’t be able to take half of his $300,000 in assets since it was accumulated by him prior to their marriage.

With a combined total of $1,200,000 in assets, David and Sandra are in a position to leave $300,000 to each child, regardless of biological parentage. However, if they intend to take a different approach to their bequests for whatever reason, the law - in its “untamed” form - can quickly begin to get in the way.

To further complicate matters, in Ontario, marriage revokes a Will. So, if Sandra and Daniel both have Wills leaving everything first to one another, and then to their children equally after the last of the two of them dies, and Sandra dies, and Daniel remarries again, his Will is revoked! If he doesn’t execute a new Will, he would die “intestate”, meaning that the law uses a fixed formula to determine who gets his assets (including the assets intended by Sandra for their children). That formula would see Daniel’s surviving wife, and any children they have together, get those assets! This would be far removed from what Sandra intended.

Conundrum upon consternation, right? The estate planning concerns of blended families tend to be more complex, and the emotional weight behind decisions tend to be heavier. In the midst of it all are the children, and a large part of the challenge is getting it right for them. So, what to do?

1. Talk about it.

There is simply no substitute for good, honest, open conversation. Talk to a good estate planning lawyer to get the facts, the law, and the options straight, then take the time to hash out the hopes, the fears, the details, and the possibilities. Do all of that, then return to the estate planning lawyer with the makings of an approach for legal implementation.

2. Don’t be afraid of marriage contracts.

One of the best ways to ensure that your assets are distributed as you would like involve “taming” the law by using an agreement. While marriage contracts tend to be seen as indicative of a lack of faith in a spouse or a marriage, they often are simply indicative of a settled intention to put the interests of the children above all other considerations. It would be possible, for example, to agree that a surviving spouse will not exercise his or her right to claim 50% of the assets accumulated over the course of a marriage, thus saving the assets for the children.

3. Don’t be intimidated by trusts.

We’ve all heard the phrase - “trust fund baby”. It conjures up the image of the children of ultra-rich parents, born with a silver spoon right in their mouths. In truth, trusts can be useful to everyone, and can - for example - be funded via insurance proceeds, or gains from the sale of a real estate holding. Want to ensure your loved ones actually get what you want them to have regardless of complex domestic circumstances and quirky legal stipulations? A trust should be right up there with your Will, and your trustee can be a financial institution rather than a person.

4. Keep your designations in the game.

What are designations? Remember that time you were setting up your RRSP and the banker asked who you’d like to give the funds to should you pass on? It had you thinking quickly, and perhaps you gave a half-certain answer, which was recorded on a piece of paper, which you signed. If you are like most people, you aren’t too sure of where that piece of paper is at the moment. Well, that paper is a designation. Most Canadians hold a substantial portion of their assets in RRSPs, TFSAs, LIRAs, insurance policies, and so on. These “registered” or contractual assets don’t have to be bequeathed through a Will - the simple designation does the trick. If you pass on, the bank simply follows the indication in the designation, and the fund ends up with who you want. This makes those funds, along with the designations attached to them, a very important tool in estate planning - especially for keeping options open in the midst of complex domestic circumstances.
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“Per Stirpes” versus “Per Capita” - a crucial distinction in estate planning.

Estate planning is a complicated process, and it can be frustrating when you get overwhelmed with legal jargon and latin phrases.

So, how about a couple more latin phrases? These ones though, will be thoroughly explained.

One very important consideration for most estates is the distinction between the per stirpes and per capita methods of distribution. When should an estate be distributed per stirpes or per capita? Why include this in your Will? What is the difference between them? This blog post will answer those questions in an accessible and informative format, and help guide you in the crafting of a Will that reflects your wishes.

Firstly, the language used in your Will is very important. While a fair judge will take the entire Will into consideration in the case of a family conflict, it is best to be clear and concise in the language you use to avoid a conflict in the first place. If there is a chance that anyone you wish to gift a portion of your estate to may pass before you do (predecease) it is a good idea to clarify how you wish that gift to be redistributed among your other descendants. Outside of naming each individual recipient individually, per stirpes and per capita distribution are the two most popular methods of such clarification.

Per Capita
Per Capita is Latin for “by the head.” You can think of this like a head count - if you are present, you will receive your share. If not, it will be divided up among those who are present. A per capita scheme identifies one or more rows on the family tree (called a class), such as your children, your grandchildren, or your great-grandchildren, and ensures that each of them will receive an equal portion of your estate. They must still be alive to receive their share. To make it easy, let’s assume that you have chosen your children as the class and that each of them will receive an equal share. If one of them were to pass away before the release and execution of the Will, their share will not pass to their children or their spouse. Instead, their portion of your estate will be divided up among your other children equally. If you choose all of your surviving descendants, each one of them will receive an equal share. This method of distribution is called direct entitlement.

It is most appropriate to use “per capita'' when you intend each person to receive an exactly equal portion of your estate, even if this means that one branch of your family will receive more than another. This is demonstrated in the figure below:

Figure 1: Per Capita Distribution (Children only)
Stacks Image 73
Child 1 and 3 would each receive half of the Testator’s estate. The share that would be given to Child 2 is equally divided between Child 1 and 2

Figure 2: Per Capita Distribution (All descendants)
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Each living descendant would receive an equal portion of the Testator's estate.

Per Stirpes
Per Stirpes is Latin for “by the stock” or “by the root.” You can think of this like a family tree. Even if a person is deceased, their share will travel down the tree to their roots - usually their children. A per stirpes scheme means that a person’s children will represent them if they have passed away before a will is divided up. To use the same example, if you choose your children as the class and you choose to divide your estate equally among them, but one has passed away, their share will be split equally among their children. This is called entitlement through representation and means that a share will go to the family of the intended recipient if they are no longer around to receive it.

It is most appropriate to use “per stirpes” when you intend each branch of your family to be treated equally, even though this may mean that members of the same generation may be treated differently. This is because an equal distribution of your estate among your children will result in an unequal distribution to your grandchildren if your children have differing numbers of offspring.

In most instances of the use of “per stirpes” distribution, the stipulation would be that the estate be divided evenly among the testator’s children, with the added proviso that if a child has predeceased the testator, that child’s portion is to be transferred to the child’s children (the testator’s grandchildren) “in equal shares per stirpes”. Using the figure above, and assuming instead that it is “Child 3” who has predeceased the testator, the result would be one-third to “Child 1”, one-third to “Child 2”, and one-sixth each to “Grandchild 6” and “Grandchild 7”. In this use case, for a grandchild to inherit, the grandchild’s parent must have passed on.

It is also possible, however, for the testator to use “per stirpes” distribution to ensure each branch of the family receives an equal share of the estate, with all living family members - children and grandchildren - inheriting. This is demonstrated in the figure below:

Figure 3: Per Stirpes Distribution (All descendants)
Stacks Image 91
Assuming equal weight is given to Children and Grandchildren, the above would be the division of the Testator’s estate such that each branch of the family receives a total of 1/3rd.

In essence, the difference between the two is that a per capita scheme refers to equal shares for living, named individuals, and a per stirpes scheme refers to a person’s family line or branch or “stripe”. Per capita means each individual is given an equal share and per stirpes means that each branch of the family is given an equal share.
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