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Trusts for Disabled Beneficiaries: Good News!

  • Post category:Tax Planning

One common planning technique for disabled individuals involves the use of a trust under which the trustees possess ultimate discretion over any distributions to be made. In other words, the beneficiary has no enforceable right to receive any distributions from the trust unless or until the trustees exercise their discretion in the beneficiary’s favour. The intent of such a trust is that the trust assets not be considered assets of the beneficiary, such that they will not influence the beneficiary’s eligibility for various social benefits. Such a trust is commonly referred to as a “Henson trust”.

In a January 25, 2019 Supreme Court of Canada case, a disabled individual (SA) was denied rent assistance on the basis that the assets of a trust under her father’s will were considered to be assets in which she had a beneficial interest. SA had refused to provide information on the trust’s assets to the program administrator (MVHC) in conjunction with her annual application for rent assistance.

Consistent with a “Henson trust”, the trust terms appointed SA and her sister as trustees, required two trustees at all times, and provided the trustees with discretion to pay as much of the income or capital as they “decide is necessary or advisable” for SA’s maintenance or benefit. The terms also provided that any remaining assets at the time of SA’s death be distributed in accordance with her will, or intestacy law if her will did not provide direction. Finally, in the event of her sister’s inability or unwillingness to serve as trustee, SA could appoint a replacement trustee.

Individual wins

The Court held that the term “assets” as used in the program documentation did not include the discretionary trust interest, which was more akin to “a mere hope” of future distributions. It was reasonable for MVHC to require details of the trust structure, and SA had previously provided that legal documentation. As SA’s interest in the trust was not an asset, MVHC could not require disclosure of details of the trust assets as a condition of her rental assistance. MVHC was required to exclude the trust assets from the total assets considered when determining available rental assistance. MVHC was also required to compensate her for assistance denied to date.

Limitations to the ruling

The Court noted that this does not mean that the interest of a disabled person in a “Henson trust” could never be treated as an asset. This would depend on the rules and regulations governing the relevant program. 

ACTION ITEM: The judges’ comments indicate that each program’s terms must be examined to determine whether such a trust interest would properly be considered an asset of the individual. Consider whether a Henson trust would benefit a disabled relative.