A person’s Last Will and Testament allows them to not only determine how their estate is distributed upon their death, but can also set out their expectations on how to care for their minor-aged children. To ensure that the needs of the child can be met, here are some of the elements that should be part of this important document.
One key issue is to decide who to appoint as guardian – the person who will assume the responsibility of raising the children upon the death of their parents. A person entitled to custody of a child may appoint one or more persons to fill that role after the death of the parent, as per section 61 of the Children’s Law Reform Act. It’s also possible to choose a different guardian for each child if that works in a particular situation.
Keep in mind that such an appointment is typically only in force for 90 days, during which time the custodian must bring a court application seeking permanent status. The testator’s appointment can be overturned by a judge, however, especially if circumstances have changed between the writing of the will and the guardianship appointment being made. Perhaps your appointed guardian is having personal struggles of their own and is no longer fit to care for your children. In most cases, though, the court will typically respect the choice of the testator and assign great weight to their final wishes.
When it comes to minor-age children, an equally important designation is the appointment of a trustee. This can be the same person as the guardian, though it doesn’t have to be. A trustee makes decisions about how your assets are managed and when funds are allocated to your children. For example, parents may decide it would not be in their children’s best interests to receive a large inheritance at the age of 18. Those funds can be controlled by the trustee until the children reach a higher level of maturity.
When parents prepare their wills, they do not know what the future needs of their children will be. Maybe a child will be injured and will require therapy not covered by provincial health plans, for example, or they could develop a keen interest in music or some other pursuit requiring expensive equipment.
These needs could be paid for by the trust if the trustee is convinced they are in the best interests of the child. The trustee can also release funds for the general maintenance of the child, with all withdrawals recorded for later reference.
Specialized trusts can be established for a number of different scenarios. For example, the Henson Trust is used in estate planning where there is a disabled beneficiary who is entitled to receive support payments from the Ontario Disability Support Program (ODSP).
Under the Ontario Disability Support Program Act, if a recipient of ODSP has assets or receives income over a prescribed limit, they will be ineligible to receive support payments. One way to address this issue is through the establishment of the Henson Trust.
Those in a second marriage or any sort of blended family definitely need a will. There needs to be direction on who inherits what. Court challenges are sure to arise if the direction is unclear or if it is seen as patently unfair to one party.
That is reinforced by a TD Wealth survey that found that family conflict was identified as the leading threat to estate planning. The survey cited the designation of beneficiaries (30 percent) as the most common cause of conflict, with other leading factors including not communicating the plan with family members (25 percent) and working with blended families (21 percent).
Some parents may want to include information about their parenting philosophy or provide advice about how to handle their children in the will. A Last Will and Testament is not the place for that. This is a legal document that contains specific instructions about the distribution of your estate. After your will is probated, it becomes a public document that anybody can read. However, instructions or encouragement about parenting can be included in a letter or other separate document that accompanies the will.
A will is the last gift you will give your children, so you’ll want to work with a lawyer to make sure it leaves the legacy you intended.
Thanks for reading – and be safe.
The Henson Trust, and planning for individuals receiving ODSP, has been thoroughly discussed on this Blog in the past, but today we look at the potential necessity for multiple Henson Trusts.
In July of 2019, Stuart Clark discussed the concept of a Henson Trust and the risk to provincial entitlements if “a testator does not take steps prior to their death to ensure that their estate plan includes tools such as a Henson Trust that would allow the beneficiary to receive the inheritance as well as continue to receive their benefits from ODSP.”
A 2019 decision by the BC Court of Appeal upheld a lower court’s finding that a distribution of estate assets to a trust that was settled by the Deceased during his lifetime was inoperable. Such a distribution is known as a pour-over clause as the assets are said to “pour over” into the separate trust.
In Ontario, the fundamental issue with the use of pour-over clauses is that by allowing a distribution from a Will to a separate trust (that can be easily altered after the Will is executed), it may not conform to the strict formal requirements otherwise required for a Will to be altered. The formalities required to alter or amend a trust are much lower than those required to create a Will.
Which brings us to today’s topic: Families may need multiple Henson Trusts.
A family-owned business, for example, may yield assets for both uncles and aunts, as well as for the parent of an individual who receives provincial assistance. Because of the issues with pour-over clauses, it becomes extremely difficult for a gift to vest in a beneficiary and then be subsumed by a current or future Henson Trust. As a result, an outright gift to a nephew may jeopardize his provincial entitlements despite the existence of a separate Henson Trust.
Further, while a Will can be changed or altered at anytime prior to death, it is never a good idea to rely on other people to provide for a particular family member. However, because multiple Henson Trusts can feel cumbersome, discussing plans with family members is always a good idea when appointing the same trustee is a possibility.
Depending on the family and circumstances, talking with family members about estate plans can be challenging, but sharing ideas about Henson Trusts can potentially ensure that no one loses access to ODSP.
Thanks for reading.
Ian Hull and Daniel Enright
ODSP – How long do you have to put an inheritance into a trust before it counts against your asset limit?
Yesterday I blogged about the potential for an individual who receives benefits from the Ontario Disability Support Program (“ODSP”) to place up to $100,000.00 from an inheritance they receive into a trust for their benefit without such funds counting against the maximum asset limit they are allowed to have to continue to qualify for ODSP. Although the use of such a trust can work as an effective tool to help insulate an ODSP recipient from the risk that an inheritance they receive could disqualify them from ODSP, as there is a deadline by which such a trust can be established it is important that ODSP recipient acts quickly to create the trust.
As noted in my blog yesterday, the ability for an ODSP recipient to establish a trust so that any inheritance would not count against their asset limit is governed by the Ontario Disability Support Program Act (the “Act“) as well as O.Reg. 222/98 (the “Regulation”). Although neither the Act nor the Regulation establish a deadline by which such a trust needs to be established, the Government of Ontario has released Policy Directive 4.7 which states that ODSP recipients may be given up to six months from receiving their inheritance to establish the trust. From the perspective of the Government of Ontario, if the ODSP recipient does not put the funds into the trust within six months of receiving the inheritance, the funds will begin to count against their maximum asset limit. As a result, if after the six month deadline the trust has not been created and the inherited funds push the ODSP recipient over the maximum asset limit they will lose their benefits.
Although the Government of Ontario appears firm in their position that an ODSP recipient has a maximum of six months to place any inheritance into a trust before the funds will count against their asset limit, it should be noted that as neither the Act nor the Regulation provide for any deadline by which the trust must be established that some people have argued that the six month deadline proposed by the Ministry should not be considered law and can be extended. Such an argument was raised before the Ontario Social Benefits Tribunal in 1711-09594 (Re), 2018 ONSBT 5888, wherein the Tribunal ultimately agreed to extend the deadline for a trust to be established to ten months after an ODSP recipient’s benefits had initially been terminated for going over the asset limit for not creating the trust within six months. In coming to such a decision the Tribunal states:
“(8) Section 28(1) does not specify a time period within which an inheritance must be converted into a trust in order for it to qualify as an exempt asset.
(9) The Tribunal finds that in the absence of specific guidance in the legislation, it is to be inferred that an ODSP recipient should be given a “reasonable” amount of time to establish a trust and thereby exempt inheritance funds from his or her asset calculation. What is “reasonable” will in turn be determined by the circumstances present in each individual case. Such an interpretation allows effect to be given to section 28(1)19 and is in keeping with the purposes of the Act.” [emphasis added]
Although decisions such as 1711-09594 (Re) show that the six month deadline to establish the trust can be extended by the Tribunal to allow an ODSP recipient a “reasonable” amount of time to establish the trust before the inherited funds will count against the asset limit, as the Government of Ontario continues to reference the six month deadline in Policy Directive 4.7 for the trust to be established it is likely wise to continue to consider the deadline for the trust to be established to be six months.
Thank you for reading.
The use of planning tools such as a “Henson Trust” is an often discussed topic in the estate law world for what can be done to allow an individual who receives benefits from the Ontario Disability Support Property (“ODSP”) to receive an inheritance from an estate without losing their benefits. Although the Henson Trust can be an effective tool to allow an individual to receive an inheritance from an estate while not losing their benefits, as a central tenant of the Henson Trust is that the inherited funds do not “vest” in the beneficiary until the trustee makes a distribution in their favour (thereby allowing funds in the trust not to count against the asset limit provided for by ODSP before they are distributed), a beneficiary and/or Estate Trustee cannot create a Henson Trust after the testator has died as the inherited funds have typically already “vested” in the beneficiary and therefore would count against the asset limits for ODSP. As a result, if a beneficiary who receives an interest in an estate is also an ODSP recipient (and the Will did not use a tool such as a Henson Trust to ensure the inherited funds do not count against the ODSP qualification criteria), there is the risk that the beneficiary could lose their ODSP benefits as a result of the inherited funds putting them offside the ODSP qualification criteria.
Although advance planning is always preferable when dealing with a situation in which a potential beneficiary receives ODSP, sometimes for whatever reason a testator does not take steps prior to their death to ensure that their estate plan includes tools such as a Henson Trust that would allow the beneficiary to receive the inheritance as well as continue to receive their benefits from ODSP. Should this occur, although the options available after the testator’s death are more limited to the beneficiary, there remain certain remedial steps that could be taken by the beneficiary to help to insulate them against the risk that their newly inherited funds would disqualify them from ODSP.
The general parameters for who is entitled to ODSP and how it is to be administered is governed by the Ontario Disability Support Program Act (the “Act“), section 5(1) of which provides that the government through regulation is to establish a maximum “asset limit” for an individual who receives ODSP. The regulation that establishes the asset limit is O.Reg. 222/98 (the “Regulation”), section 27(1) of which sets $40,000.00 as the current maximum “asset limit” for an individual who receives ODSP (although such an asset limit is potentially higher if the individual has a spouse or dependants).
As a result of section 5(1) of the Act in collaboration with section 27(1) of the Regulation, if an ODSP recipient’s total assets exceed the $40,000.00 maximum asset limit after receiving their inheritance they would likely lose their ODSP benefits. To this respect, if the potential inheritance the beneficiary/ODSP recipient is to receive is significant, there is the very real risk that if no steps are taken to help to insulate the inheritance from counting against the asset limit the beneficiary would lose their ODSP benefits.
Although section 27(1) of the Regulation provides that the ODSP recipient’s assets may not exceed the maximum threshold, section 28(1) of the Regulation lists certain assets and/or interests which are deemed not to be included in the calculation of an ODSP recipient’s assets. These “non-counting” assets potentially include a trust that is established by a beneficiary with funds that they inherit from an estate. Specifically, item 19 of section 28(1) of the Regulation provides that the following would not count against the asset limit:
“Subject to subsection (3), the person’s beneficial interest in assets held in one or more trusts and available to be used for maintenance if the capital of the trusts is derived from an inheritance or from the proceeds of a life insurance policy.”
Section 28(3) of the Regulation then further provides:
“The total amount allowed under paragraphs 19 and 20 of subsection (1) shall not exceed $100,000.”
As a result of section 28(1)19 of the Regulation in conjunction with section 28(3), if an ODSP recipient receives an inheritance or the proceeds of a life insurance policy they are allowed to put up to $100,000.00 of such funds into a trust to be held for their benefit without such funds counting against their asset limit for ODSP. As a result, if the inheritance that the ODSP recipient is to receive is $100,000.00 or less (or close to $100,000.00 such that any excess over $100,000.00 would not put them offside the asset limit), the potential option of putting the inheritance into a trust for the benefit of the ODSP recipient may be available to help insulate the inherited funds from counting against the asset limit.
If a beneficiary/ODSP recipient would like to explore the possibility of establishing such a trust after death they should speak with a lawyer to ensure that the trust is drafted in compliance with ODSP requirements.
Thank you for reading.
Several newsworthy changes to the Ontario Disability Support Program Act, 1997 (the “Act”), came into force last year. For estates and trusts lawyers, the most important changes were increases in cash exemption limits, as well as increases in permissible payments to ODSP recipients. Specifically:
- basic cash exemption limits were increased for a single person (from $5,000 to $40,000), and for a spouse included with the person (from $7,500 to $50,000); and
- permissible payments from a trust fund, segregated fund, gifts and other voluntary payments were increased from $6,000 to $10,000 over a twelve-month period.
This year, further to the Wynn’s Government’s 2018 Budget, a change was to have been made to subsection 43(1) of the general Regulation of the Act. Subsection 43(1) currently delineates several items that shall not be included in income, including the following at paragraph 13:
“Payments in addition to a payment under paragraphs 1 to 12 that are payments from a trust or life insurance policy or gifts or other voluntary payments up to a maximum of $10,000 for any 12-month period.” [emphasis added]
The contemplated amendment is a striking of the words: “up to a maximum of $10,000 for any 12-month period“. The attached article reviews the intended change and its significance. The author cites that with these words being removed, other paragraphs relating to certain allowable gifts and voluntary payments would also be removed. The impact would reportedly include that beneficiaries of a trust may receive unlimited monies, and that recipients of ODSP benefits could receive unlimited gifts and voluntary payments. The $40,000 and $50,000 asset limits noted above would still apply, but RRSPs and TFSAs would no longer fall within the scope of such assets.
The modification to subsection 43(1) was to have already come into force, in part, but has not further to the Ford Government’s July 31, 2018 press release announcing that:
“Over the next 100 days, Ontario will work on a plan to reform social assistance…While work is underway, people receiving support through the Ontario Disability Support Program will receive a 1.5 per cent cost of living increase on September 1, 2018…While work is underway…Ontario will not proceed with initiatives announced in Chapter 1, Section 7 of the previous government’s 2018 Budget.”
It will be interesting to see what reform will be communicated to the public next month. We will keep you posted!
Thanks for reading and have a great day,
Natalia R. Angelini
The Henson Trust has become fairly common estate planning tool for those looking to provide a bequest to someone who may be receiving government benefits such as ODSP without such an individual losing their qualification to the government benefits. At the core of the Henson Trust is the concept that the trust is wholly discretionary, with the assets that are placed in the trust not “vesting” in the beneficiary who is receiving the government benefits until the trustee has decided to make a distribution in their favour. This allows the trustee to ensure that the beneficiary does not receive a greater amount from the trust in a given time period than allowed under the government benefits, such that the beneficiary can continue to receive their government benefits as well as receive funds from the trust.
But what happens to any funds that may be left in the trust upon the death of the beneficiary for whom the Henson Trust was primarily established? Typically, the terms of the trust will provide for a “gift-over” of any residue to an alternate beneficiary. If the trust fails to provide for such a “gift-over” however, it could have significant repercussions to the primary beneficiary for whom the Henson Trust was established, and could result in the Henson Trust being declared void.
For a trust to exist it must have what are known as the “three certainties”. They are:
- Certainty of Intention – It must be clear that the settlor intended to create a trust;
- Certainty of Subject Matter – It must be clear what property is to form part of the trust; and
- Certainty of Objects – It must be clear who the potential beneficiaries of the trust are.
A trust that does not have the “three certainties” is an oxymoron, insofar as there can be no trust that offends the three certainties as the trust failed to be established. In the circumstance contemplated above, the lack of “gift-over” upon the primary beneficiary’s death would arguably equate to there being a lack of “certainty of objects”, insofar as it is not clear who all of the potential beneficiaries of the trust are. If it is found that the trust does offend the “certainty of objects” it would fail. Should the trust fail, the primary beneficiary for whom the Henson Trust was established would no longer have the funds which would have formed the Henson Trust available to top up the funds which they receive from their government benefits, with such funds likely now forming part of the residue or being distributed on a partial intestacy.
Although the historical application of the “three certainties” would result in the Henson Trust contemplated above having been declared void from the beginning, insofar as no trust that offends the three certainties can be found to exist, it should be noted that the court in Stoor v. Stoor Estate, 2014 ONSC 5684, went to great lengths to avoid such an outcome. In Stoor Estate, notwithstanding that the court found that the trust in question failed as a result of it offending the three certainties for a lack of “certainty of objects”, the court delayed the failure of the trust until after the primary beneficiary’s death believing that it was in keeping with the testator’s intentions.
There has been significant debate about whether the Stoor Estate decision was correctly decided, and what impact, if any, it should have upon the historical application of the “three certainties”. What is not in debate however is that it is important that when drafting a Henson Trust, or any trust for that matter, to ensure that you provide for a gift-over of the residue upon the primary beneficiary’s death. If you fail to provide for such a gift-over you run the risk that the trust will be declared void for offending the three certainties, thereby depriving the individual for whom you were establishing the Henson Trust the opportunity to receive such funds in addition to their government benefits.
Thank you for reading.
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,
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