Providing for Disabled Beneficiaries PART IV

January 11, 2007 Hull & Hull LLP Beneficiary Designations, Executors and Trustees Tags: , , , 0 Comments

The Ontario Disability Support Program specifically provides that an absolute discretionary trust, also known as a “Henson Trust”, is not considered to be an asset of the disabled beneficiary. Thus, this gives a testator a significant planning vehicle to provide for a disabled beneficiary.

The discretionary trust must be truly discretionary, and the disabled beneficiary must have no vested right in the trust. Otherwise, the ODSP will consider the trust to be an asset of the disabled beneficiary.

To be a true discretionary trust, the trust must provide that any distributions to the disabled beneficiary are in the absolute discretion of the trustee. There must also be a gift over to a third party, so that the disabled beneficiary is not able to call for the collapse of the trust. Thirdly, the testator should provide for the distribution of any accrued income during the 21 year period, so that there is not a forced distribution of these funds.

Typically, the trustee will use the fund to purchase exempted assets for the disabled beneficiary, or to make distributions of income to the disabled beneficiary up to the $5,000 threshold, or to provide for the disabled individual once they turn 65 and are no longer entitled to benefits.

As the discretionary trust is not an asset of the disabled beneficiary, there is no limit to the amount that can be placed in the trust.

As the discretion given to the trustee is absolute, the choice of a trustee is of particular importance.

Have a great day.
Paul Trudelle

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