In the 1980s Leonard Henson blazed the legal trail in Ontario by creating a trust for his disabled daughter in his Will that protected her from losing her disability benefits after his death. Since then, Henson trusts have since survived the test of time but from time to time various provinces have challenged them and it has been left up to the courts to decide on a case by case basis if they will continue to work. In a Henson trust the trustee has complete discretion over the trust fund that is created for the disabled person to manage it as he or she sees fit, no matter how large the fund is. Qualifying for ODSP benefits in Ontario still includes a means test, which basically means that if the disabled person has too many assets, they lose their disability benefits. Henson trusts shield those assets from being included in the disabled person’s means test. An inheritance therefore, even though well intended, can actually upset the stability of the life of a disabled person by putting them offside the means test and knocking them off their ODSP benefits, leaving them to fend for themselves.
The BC government challenged a Henson-type trust in 2015 and their attack was supported by all levels of the BC courts. Thankfully the Supreme Court of Canada has stepped in this year. Estate planners have been in pins and needles wondering if the world of planning for the needs of disabled persons had been turned on its ear. Fortunately, the SCC put an end to the question whether Henson type trust were a legitimate planning tool for disabled Canadians. As always, the devil is in the details, so any Henson trust needs to be properly constructed for the circumstances. But the landscape looks a lot less volatile which is great news for the protection of society’s most vulnerable people. If you wish to benefit a disabled person in your estate plan, make sure that you consult with a lawyer that understands how that plan can best be crafted to protect the ones you love.