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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.

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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