The Use of Henson Trusts in Ontario vs. Alberta
Alberta recently passed legislation which will allow for the use of Henson trusts in estate planning in the province. Although Henson trusts are commonly used in Ontario, prior to this new legislation, the law in Alberta provided that the value of an individual’s interest in a trust was to be included in calculating his or her assets for the purpose of determining eligibility under Alberta’s Assured Income for the Severely Handicapped (“AISH”) program, thus preventing the effective use of Henson trusts.
A Henson trust is a type of trust often used here in Ontario in situations where a beneficiary is a recipient of The Ontario Disability Support Program (“ODSP”). An individual’s eligibility for ODSP is determined based on his or her income and assets. The Henson trust has emerged as a strategy to provide for a disabled beneficiary without compromising his or her eligibility to receive ODSP benefits.
The regulations to the Ontario Disability Support Program Act, 1997, S.O. 1997, c. 25, Sched. B provide that if a person has a beneficial interest in a trust that is derived from an inheritance or proceeds of a life insurance policy, provided that it does not exceed $100,000.00, this interest will not be included in calculating his or her assets. On the other hand, a Henson trust is not restricted as to size, as it is set up to be fully discretionary, such that the beneficiary does not have a vested interest in the trust.
A Henson trust would usually be set up such that the beneficiary who is a recipient of ODSP is the subject of the trustee’s absolute discretion to make distributions to him or her. Upon the beneficiary’s death, there will typically be a gift-over to a person or entity other than the disabled beneficiary. As the disabled beneficiary is not entitled to any assets from the trust (given the trustee’s absolute discretion), it is not considered to be an asset of his or hers. The trustee of a Henson trust should still be mindful in making discretionary distributions to the disabled beneficiary, so as not to exceed the maximum annual income receivable by them, and possibly risk disentitling the beneficiary to ODSP benefits.
As discussed in this article, Alberta recently passed An Act to Strengthen Financial Security for Persons with Disabilities (SA 2018, c 12), which provides that a person’s interest in a trust is not to be included in the calculation of that person’s assets for the purpose of AISH, and repeals the section of the regulations which previously allowed for the inclusion of a trust interest in this calculation. As noted in the article, this will now allow for the use of Henson trusts in Alberta, and provide more flexibility in estate planning where a disabled beneficiary is receiving government support.
Thanks for reading,
You may also enjoy these other blog posts: