What is a Henson trust? A recent Supreme Court of Canada (SCC) decision offers relief for parents and adults with disabilities.
SA v Metro Vancouver Housing Corp, 2019 SCC 4, released Jan. 25, determined a Henson trust cannot be used to exclude beneficiaries from social benefits, provided the trust meets certain conditions.
S.A., a long-term tenant in a Vancouver subsidized housing project, and her sister are trustees of a fund arranged for S.A.’s care, maintenance, education or benefit. When S.A. refused to disclose trust information, the housing agency declined rental assistance on the basis the trust is an asset whose value is needed to determine eligibility. The SCC found otherwise.
The trust is arranged so S.A. cannot unilaterally collapse it or compel her co-trustee to pay her any legal fees and taxes.
SCC Justice S. Cote noted the arrangement is essentially a Henson trust:
“…S.A. has no enforceable right to receive any of the Trust’s income or capital: unless and until the Trustees exercise their discretion in her favour, S.A.’s interest in the Trust is akin to a mere hope that some or all of its property will be distributed to her at some point in the future.”
Since S.A. can’t independently decide how the trust is used, she can’t discharge debts or liabilities, including monthly rent, unless her co-trustee agrees. As with all Henson trusts, the funds are outside the beneficiary’s control.
That being the case, the Metro Vancouver Housing Corporation (MVHC) had no basis to require S.A. to disclose the balance in the trust, the SCC found. And, as the trust is not an asset, S.A.’s failure to disclose it should not have affected whether MVHC considered her request for rental assistance.
Advice From A Family Lawyer
A Henson trust preserves funds for adults with disabilities after a parent is gone. According to a family lawyer, it provides comfort a family member will be financially safer. The trustee who the family member (estate “settlor”) appoints has absolute and sole discretion over how funds are used. That includes making decisions, if the trustee feels they are needed, that support and maintain the beneficiary. (Since the trustee is not required to make funds available for support and maintenance, choosing a trustee whose goals match the families’ is wise.)
Considering only 59.4 per cent of Canadians 25 to 64 with disabilities were in the labour force in 2017, a Henson trust can be a valuable addition to a will. Even with a job, average incomes for working adults with severe to mild disabilities average from $19,160 to $34,330 annually. People with disabilities who are on their own suffer the most: 32.7 to 61.4 per cent of those living alone have incomes below Canada’s poverty line. More alarmingly, over 26 per cent of Canadians with disabilities are going without — not buying needed devices or rationing prescription drugs — because they cannot afford the cost.
As Al Etmanski, executive director of PLAN (Planned Lifetime Advocacy Network) points out, having a discretionary trusts leaves a settlor’s funds in presumably safe hands. That reduces the opportunity for a disabled family member to be exploited or left vulnerable.
A Henson trust must meet specific conditions to be beyond the reach of any individual social program. It must be absolutely discretionary, the beneficiary must be unable to unilaterally collapse it and it must comply with the social program’s contractual terms.
A Henson Trust Must Meet Specific Conditions
S.A.’s trust meets the first two conditions. She cannot pay herself without her sister’s consent and she does not benefit if the trust is collapsed while she is alive. Any remaining funds pass to a third party on her death.
Regarding MVHC’s contract, the SCC found the rental agreement infers assets are property that can be used to discharge debts and liabilities. Since the court’s decision in Sattva Capital Corp. v Creston Moly Corp., the SCC is required to consider the ordinary and grammatical meaning of the word “asset” in light of the specific context in which it is used. 7 Looked at that way, the mere fact of having an interest in the trust is not an asset since it does not relieve S.A.’s financial situation “in any meaningful way.” S.A. cannot decide on her own if any trust funds will ever be available to pay her rent.
In setting up a trust, families should be aware that monthly trust payments may be considered income for Ontario Disability Supports Program (ODSP) purposes.
This is true unless:
- “approved disability related items, services, education or training expenses that are not reimbursable;
- the purchase of a principal residence or an exempt vehicle;
- first and last month’s rent necessary to secure accommodation; or
- any purpose up to $10,000 maximum in a 12 month period.”
S.A. benefited from her Henson trust because the payments are considered voluntary. As with ODSP rules, voluntary payments are made at the discretion of a trustee, who has no obligation to assist the beneficiary.
Depending on the social program, that may not always be the case. As the SCC notes:
“The eligibility criteria associated with any social assistance program must be analyzed on their own terms to determine whether and, if so, how an interest in a Henson trust factors into any applicable means test.”
Before arranging a trust for your family member, speak with a ClearWay Law wills and estates lawyer. Call the 24/7 Lawyer Hotline at (877) 978-1669 or email firstname.lastname@example.org to book a consultation.