What is a “Trust”?
A Trust exists when one person (the “Trustee”) holds or manages something, such as money, property or other assets, for the benefit of someone else (the “Beneficiary”).
What is a “Henson” Trust?
A Henson Trust, also called an “Absolute Discretionary Trust”, is set up to hold assets for a person with a disability without affecting their eligibility for government benefits like the Ontario Disability Support Plan (”ODSP”). There is no limit to the amount that can be held in the trust.
How is a Henson Trust created?
A Henson Trust can be set up in a Will by someone who wants to leave assets to a person with a disability — this person is called the “Settlor.” This type of trust is known as a “Testamentary Henson Trust”. If the Beneficiary qualifies for the Disability Tax Credit (“DTC”), the trust can benefit from lower tax rates, making it ideal for holding investments and savings for a person with a disability.
A Henson Trust can also be established while the Settlor is living. This is called an ‘Inter Vivos Henson Trust’. It operates the same way as a Testamentary Henson Trust but is treated differently for tax purposes.
How is a Henson Trust Funded?
Henson Trusts are typically funded by an inheritance or life insurance pay-out. They can also be funded through court settlements. A Henson Trust can help protect eligibility for government supports in situations where there is a sudden spike in income or assets.
How are Trustees Compensated?
The Settlor has options regarding compensating the Trustee for their services, including:
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- no compensation,
- expense reimbursement only,
- providing a lump sum payment each year,
- other form of reasonable compensation in accordance with guidelines set out by the courts.
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In either case, the payment would come out of the Trust.
How to Select a Trustee:
There are number of key factors a Settlor should consider when appointing a Trustee of a Henson Trust:
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Trust:
Trusting the person(s) you choose as a Trustee is key, this is because:
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- Despite high standards for Trustee(s) conduct, there is little oversight to ensure those standards are met.
- The Beneficiary of the trust often has a disability or requires support to understand the implications of the trust and their rights related to the trust.
- As an absolute discretionary trust there is potential for abuse, particularly if the Trustee(s) is a beneficiary of the remainder of the trust.
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Knowledge and Expertise
A Henson Trust is a specialized trust designed as one piece of a larger plan for the financial security of a person with a disability. The Trustees need to understand the complexity of the situation, including:
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- the purposes of the trust;
- the rules around ODSP eligibility;
- the record keeping requirements;
- the tax considerations;
- the applicable investment options (ex. the segregated funds and RDSPs); and
- the availability of other sources of funding and supports within the community for the Beneficiary.
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Roles and Responsibilities of a Trustee
There is a lot of work involved in managing a Henson Trust including:
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- managing and investing assets;
- accounting records tracking all transactions;
- managing compliance, audit and review by CRA, PGT and the Courts (i.e. passing of accounts);
- filing tax returns annually;
- filing disbursement reports with ODSP; and
- distributing funds for the benefit of the Beneficiary.
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We recommended that the Trustee lives within close distance of the Beneficiary. At the very least the Trustee should reside in Canada, as there are tax considerations which make out of country trustee appointments undesirable.
About PooranLaw Trustee Services
Here’s what we offer:
Assistance and Peace of Mind
The work involved in managing a Henson Trust can be daunting. Receiving professional advice may ease this burden and give the Trustee peace of mind that no details will be overlooked.
Expertise and Knowledge
The legal team at PooranLaw routinely advises Trustees of Henson Trusts. We have extensive experience with all aspects of trust administration, as well as with ODSP matters and with the disability and developmental services sector. Many Trustees also choose to draw on the expertise of our partners in the tax and financial services sectors for seamless, comprehensive service.
Understanding and Compassion
Our team knows that creating a safe, secure, healthy and happy life for people with disabilities is about more than just spending funds, keeping accounts and filing tax returns. It is about managing funds in a way that supports the inclusion of the individual in community and assisting them in achieving their goals and realizing their potential. When retained to advise a Trustee, we encourage him or her to keep these matters front and centre.
Stability and Security
Since a Henson Trust may continue to exist for many years, its administration brings ongoing responsibilities. We have well-established procedures in place to respond to the Trustee’s needs over the long term.
Impartiality
As a law firm without any personal stake in the trust, PooranLaw can be relied on to provide unbiased and impartial advice to the Trustee.
Affordability
At PooranLaw we know that every dollar spent paying professional fees is a dollar that is not available to the Beneficiary. Our fees and those of our professional partners are charged at our affordable rates. We have streamlined our processes for efficiency to minimize the costs of our services.
How we can help:
If you are setting up a testamentary Henson Trust, you can express a wish in your Will that the Trustee retain PooranLaw for advice and assistance when the time comes. Although the Trustee is not obligated to do so, they are to give your request serious consideration.
If you are the Trustee of an existing Henson Trust, the lawyers at PooranLaw will be happy to speak more with you about the services we provide.