Henson Trust in Canada — Preserving Disability Benefits for Beneficiaries
For Canadian families with disabled adult beneficiaries receiving provincial disability benefits, the Henson trust is a specific estate planning tool for leaving an inheritance without it being treated as the beneficiary's own asset. Whether that works depends on the wording and structure of the particular benefits program, so the drafting has to be matched to it. Critical structure; specific drafting required.
The problem
Disabled beneficiaries receiving provincial disability benefits face strict limits:
- Ontario ODSP — $40,000 asset limit for a single recipient, $50,000 for a couple[3]
- Alberta AISH — a higher $100,000 non-exempt asset limit[4]
- BC PWD — $100,000 for a single recipient, $200,000 where both partners hold the PWD designation[5]
- Other provinces — comparable programs, with limits and rules that vary by jurisdiction
These figures are set by each province and are revised from time to time — confirm the current number with the relevant provincial program before relying on it.
A modest inheritance can disqualify the beneficiary, with substantial monthly benefit loss. The disabled person ends up worse off than before the inheritance — they've lost benefits but the inheritance may not be sufficient for long-term care.
The Henson solution
A Henson trust is a discretionary testamentary trust with these features:
- Beneficiary has NO legal entitlement to specific distributions
- Trustee has ABSOLUTE discretion over all distributions
- Beneficiary cannot compel distributions or unilaterally control the trust property
- Trustee uses funds for beneficiary's supplementary care, comfort, and needs
A Henson trust is typically an absolute discretionary trust under which the disabled beneficiary cannot compel distributions or unilaterally control the trust property. Whether the beneficiary's interest is counted as an asset for eligibility purposes depends on the wording and structure of the particular benefits program. See S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4, [2019] 1 S.C.R. 99.[1]
What S.A. settled is the method of analysis, and that method is nationally binding. It is not a blanket national exemption. S.A. concerned a contractual rental-assistance program: the Court held that the trust interest was not an asset under the wording of that application, that the housing corporation was not required to grant assistance, but that it was required to consider the application rather than reject it solely because of the trust. Another program, worded differently, can reach a different answer — which is why the drafting has to be matched to the specific benefits regime the beneficiary relies on.
Historical footnote. The structure is commonly associated with Director of Income Maintenance Branch of the Ministry of Community and Social Services v. Henson (1987), 26 O.A.C. 332 (Div. Ct.), aff'd (1989), 36 E.T.R. 192 (C.A.). The Supreme Court of Canada subsequently considered the treatment of such trusts in S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4, [2019] 1 S.C.R. 99.
How it works in practice
Setup. Will creates testamentary Henson trust at testator's death. Assets fund the trust. Trustee takes over.
Operation. Trustee makes distributions at their discretion for beneficiary's benefit. Funds typical things benefits don't cover — equipment, accessible vehicle, additional support, travel, recreational activities. Trustee documents decisions.
Termination. Trust ends at beneficiary's death (or earlier per terms). Remaining assets to named contingent beneficiaries.
Tax treatment — Qualified Disability Trust
Federal Income Tax Act provides preferential 'qualified disability trust' (QDT) status:[2]
- Available if beneficiary qualifies for Disability Tax Credit (DTC)
- Graduated tax rates (vs. top marginal rate for other testamentary trusts after 36 months)
- Significant tax savings on investment income held in trust
Requires annual election; specific rules for qualification.
Trustee considerations
Henson trustee role is long-term (often decades) and judgment-intensive:
- Knows the beneficiary's situation well
- Willing to serve indefinitely
- Available for distribution decisions
- Documents reasoning for distributions
- Coordinates with disability supports
Often family member (sibling, parent, adult niece/nephew). Sometimes professional trustee (lawyer, trust company) for complex situations or when no suitable family.
What Henson trusts don't do
- Don't help with general estate planning
- Don't provide direct income to beneficiary (only discretionary distributions)
- Don't avoid all tax considerations
- Don't substitute for proper benefit application and maintenance
Lawyer-drafted essential
Henson trust language is specific. Incorrect drafting can fail the discretion requirement (loss of benefit eligibility) or fail QDT election (loss of preferential tax). Estate planning lawyer with disability planning experience essential.
Typical cost: $1,500-$5,000+ for will with Henson trust drafting. Compared to potential loss of benefits over decades, very worthwhile.
What we focus on at It's Simple Will
It's Simple Will is optimized for general estate planning. For Henson trust drafting, we strongly recommend engaging a lawyer specializing in disability planning.
Related guides
Citations & sources
- [1]S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4, [2019] 1 S.C.R. 99 — the Supreme Court of Canada on the treatment of absolute discretionary trusts — Supreme Court of Canada via CanLII
- [2]Income Tax Act — Qualified Disability Trust — CanLII
- [3]Ontario Disability Support Program — asset limit definitions — Government of Ontario
- [4]AISH eligibility — asset limits — Government of Alberta
- [5]BC Employment and Assistance — Asset Limits Table (PWD) — Government of British Columbia
Frequently asked questions
What's the problem this solves?
Disabled beneficiaries receiving provincial disability benefits (ODSP, AISH, etc.) face strict asset and income limits. A large inheritance typically disqualifies them from benefits. A Henson trust is typically an absolute discretionary trust under which the disabled beneficiary cannot compel distributions or unilaterally control the trust property. Whether the beneficiary's interest is counted as an asset for eligibility purposes depends on the wording and structure of the particular benefits program — it is not an automatic exemption in every program in every province.
How does the absolute discretion work?
The trustee has complete discretion over whether to make distributions and how much. The beneficiary cannot demand specific amounts. The trustee uses funds for the beneficiary's care, comfort, and supplementary needs at the trustee's judgment. This absolute discretion is what makes the trust 'Henson' rather than ordinary discretionary trust.
Who is the trustee?
Typically a family member or close friend who knows the beneficiary well and can make discretionary decisions in their interest. Sometimes a professional trustee (lawyer, trust company). Critical that the trustee understands their role and is willing to serve long-term (often decades).
How is it taxed?
Henson trusts can elect to be 'qualified disability trusts' under the Income Tax Act if the beneficiary qualifies for the Disability Tax Credit. This provides graduated tax rates (vs. top marginal rate that applies to other testamentary trusts after 36 months). Significant tax savings for trusts holding investment income.
Does the trust survive the beneficiary's death?
No — the trust terminates at the beneficiary's death (or earlier per terms). The will specifies what happens to remaining trust assets — typically to named contingent beneficiaries (other family members, charities).
Lawyer drafting?
Essential. Henson trust language is specific and incorrect drafting can fail the discretion requirement (loss of benefits) or fail qualified disability trust tax election. Estate lawyer with disability planning experience strongly recommended.