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.
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When making testamentary gifts in a Will, if a specific bequest fails for any reason, the assets in question will fall into the residue of the estate. However, if a gift of residue fails, the distribution of whatever assets are affected by the failure will be governed by the intestacy provisions set out in Part II of the Succession Law Reform Act, R.S.O. 1990, c. S.26.
The recent decision of Sabetti v Jimenez, 2018 ONSC 3523 in part considers the interpretation of a residue clause in order to determine whether there is a partial intestacy in respect of the estate of Ms. Valdes.
The applicant, Mr. Sabetti, was Ms. Valdes’ second husband. She had three adult children from her prior marriage. Ms. Valdes’ Will provided that the residue of her estate was to be divided into four equal shares. The first share was to be held in trust for Mr. Sabetti during his lifetime, and on his death, whatever amount was remaining was to fall into and form part of the residue. The remaining three shares were to be transferred to Ms. Valdes’ three children.
Mr. Sabetti claimed that because of the gift-over of his share of the residue, which provides that it is to form part of the residue, the beneficiaries of the first share of the residue were not named with sufficient certainty, and a partial intestacy must result. Ultimately, the Honourable Justice Dunphy concluded that Ms. Valdes’ intention was clear on the face of the will, and found that there was no partial intestacy.
In its decision, the Court goes through an interesting analysis of the residue clause, outlining the rules applicable to construction of documents. Where there are two possible interpretations, one of which creates an absurd result, and one of which is in line with the apparent intention of the maker of the document, the latter is to be preferred. It is also preferable to construe a will so as to lead to a testacy over an intestacy, if it is possible to do so without straining the language of the Will or violating the testator’s intention.
In this case, the Court found that to interpret the term of the residue according to Mr. Sabetti’s position would lead to an absurd result. In terms of Ms. Valdes’ intention, the Court was of the view that the intended beneficiaries of the remainder interest were clearly the other three shares of the residue. The Court found no difficulty in discerning the testator’s intention or in applying it, and was able to read the Will in such a way as to avoid an intestacy.
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In Royston (Trustees of) v Alkerton, 2016 ONSC 2986, the executors of the estate of Recia Royston (“Recia”) sought the opinion, advice or direction of the court regarding the interpretation of a residue clause in Recia’s Will. The clause in question read as follows:
My Trustees shall divide the residue of my estate equally among my children alive at my death; but if any child of mind dies before me, leaving issue alive at my death, my Trustees shall divide the part to which that deceased would have been entitled if alive on [sic] at my death among that child’s issue in equal shares per stirpes.
Recia had five children: Michael, Peter, Laura, Alan, and John. Both Alan and John predeceased Recia. Alan had two children, Jacob and Jennifer; John had no children.
The question for the court was whether Jacob and Jennifer were entitled to the share of Recia’s estate to which their father, Alan, would have been entitled if alive. Laura’s position was that Recia intended the clause to capture only those of her children alive at the time of the execution of the will on May 13, 2014 (the “2014 Will”), namely Laura, Michael, and Peter.
The court found that Recia intended the plain meaning of the term “my children” in the clause in question, which would accordingly include all of Recia’s children. Recia had chosen to restrict her residue clause in certain ways – for instance, by specifying that it should benefit her children alive at her death, and that the children of any predeceased children should take in equal shares per stirpes. However, although she could have, she did not exclude Alan’s children, nor was there any indication that she intended to treat her children then living, or their issue, differently from the issue of her then deceased child.
The court also considered a prior will made in 1993, which contained a clause with different wording than the residue clause in the 2014 Will, but that the court held expressed the same intent. As there was no suggestion that Jennifer and Jacob were not entitled to share under the 1993 Will, this evidence corroborated a finding that they should similarly benefit under the 2014 Will.
The court also looked to another clause in the 2014 Will, and found that it was consistent with an intention on Recia’s part to benefit all of her children alive at her death, or their issue. This other clause stated that if any beneficiary died before attaining the age of 21, without issue, their share should be divided amongst Recia’s issue in equal shares per stirpes – which would include Jacob and Jennifer – thereby supporting the finding that Recia intended Jacob and Jennifer to benefit from the share of the estate that would otherwise have gone to Alan.
The court also made some comments with respect to the admissibility of direct extrinsic evidence, and ultimately did not admit much of the evidence from Laura, Jacob, Jennifer, and Recia’s brother, Larry Cohen, who was one of the executors of her estate. Following the case law in Rondel v Robinson Estate, 2011 ONCA 493, Barlow v Parks Estate,  OJ No 266, and Re Burke, 1959,  OR 26, the court considered the circumstances surrounding the preparation and execution of Recia’s will in its interpretation of the clause in question.
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