As a partly-dependent child grows into adulthood, social services such as the Ontario Disability Support Program (ODSP) become a crucial aspect of the child’s supporting system, and can help foster a sense of independence.
Inheriting assets from parents or grandparents - while always done with good intent - can be disruptive to that careful balance, since an increase in assets can render the child ineligible for the ODSP.
So, what to do? For the parents and grandparents of partly-dependent children, a tool that ought to be considered is the Henson Trust.
Guelph resident Leonard Henson cared deeply for his daughter, Audrey, who lived in a group home and relied on an allowance from the Family Law Act - now similar to ODSP payments - and on her father’s support.
Leonard carefully planned for the future needs and protection of his daughter by placing a substantial portion of his savings into an Absolute Discretionary Trust before his passing in 1981.
Think of a trust as a tool that separates “ownership” from “benefit”, since this is possible legally. For example, you can give $20 to your brother, and say “you own it, but you can’t use it; you must instead take care of it, and it must be given to my daughter exactly 10 years and 45 days from today”. That is what Leonard did. However, he took it one step further by making it “absolutely discretionary”, which means in the example above, he took out the “exactly 10 years and 45 days from today”. The result, in the example, is that your brother has the full discretion to decide when your daughter gets the $20.
So, an Absolute Discretionary Trust is one regarding which the person setting up the trust - the settlor - has given up all the “strings” of control; and regarding which the person benefiting from the trust - the beneficiary - cannot access at will or based on any condition other than the discretion of the trustee. The trustee, of course, is the person entrusted with the assets in the trust.
Now, back to Leonard’s neat story. The Ministry of Community and Social Services understood the trust he set up to be a gift to Audrey, and so they halted Audrey’s allowance payments. The Social Assistance Review Board reversed the Ministry's decision on the grounds that Audrey did not have direct access to the assets, and as such it shouldn’t be counted as an asset under her ownership. In 1989, this decision was upheld by the Ontario Court of Appeal, and it meant that Audrey’s social assistance payments would continue!
So, when is a gift not a gift and yet the person gifted can benefit from it? When, of course, it is in an Absolute Discretionary Trust.
Audrey’s good fortune created a road map for other partly-dependent children in Ontario, whether their differing abilities be cognitive, developmental, physical, or mental. Such a framework is also available for families in British Columbia, Manitoba, New Brunswick, Nova Scotia, and P.E.I.
The Henson Trust is named after Audrey and continues to provide families with a means of giving a child living with different abilities an inheritance without putting the child’s ODSP supports at risk. Eligibility for ODSP requires an individual to own less than $5,000 in assets - excluding their primary place of residence. Such an extremely low threshold puts partly-dependent persons at risk in the long run, which is why the Henson Trust is such a valuable tool in estate planning.
Now, it isn’t just about the Henson Trust. It’s also about the review of the trust document by the government offices that administer the ODSP. They must assess the trust document, and conclude that it is indeed a “Henson Trust”. This is important since, just as every partly-dependent person is unique, the Henson Trust document drawn up for each is also unique. There simply is no one size fits all. Yet, that unique document must obey some key rules established by the one drawn up years ago by Leonard’s lawyer.
Beyond the government review, it is also about the rules that have been put in place for annual transfers from the Henson Trust. The transfer cap is low, but there are exceptions for attendant care, wheelchair accessibility devices such as ramps, vehicular alterations, and modifications to the home.
Thirdly, it is about who is chosen as a trustee. It is important to identify a good trustee. Someone, or an institution like a bank, that can manage the trust with a clear mind and good character for a long time - until the trust runs out or the beneficiary passes on. The trustee will be responsible for releasing funds, managing and investing assets, and preparing records and tax returns, among other things. The trustee must understand the requirements and limitations of that role, including some knowledge of regulations under the ODSP and the Trust Act.
A Henson Trust is often established in a Will, but it can be created at any time. The benefit is that a Will is activated after the settlor passes on. Trusts that are activated before the settlor passes on are taxed at a higher rate!
If you believe that a Henson Trust may be a good option for you, and you are resident in Ontario, we can readily assist as estate planning lawyers. We have offices in Ottawa and Toronto, and can provide services in most other parts of Ontario. We can be reached by phone at 1-888-59-WILLS. There are a number of ways in which leaving an inheritance to a child with different abilities can unintentionally go awry. We are committed to ensuring that does not happen to your child or your family.