A type of discretionary trust known as a “Henson Trust” is often used in estate planning to provide for a beneficiary with disabilities. It is particularly useful when the intended beneficiary might otherwise be entitled to receive financial support from government means-based programs, such as the Ontario Disability Support Program (ODSP).
In 1987, the Ontario Court of Appeal, in The Minister of Community and Social Services v Henson, held that a trust established for a disabled beneficiary did not result in a loss of government benefits, where the beneficiary was not in control of the trust property. However, such a trust, now generally known as a Henson Trust, must meet certain criteria. The trustees must have absolute discretion to determine whether to provide funds to the beneficiary (meaning that the beneficiary has no right or entitlement to the funds), nor can the beneficiary unilaterally terminate the trust.
In January 2019, the Supreme Court of Canada in SA v Metro Vancouver Housing Corporation confirmed that an interest in a Henson Trust will not be considered an asset of the disabled beneficiary. In this case, SA, a person with disabilities, resided in a housing complex operated by the Metro Vancouver Housing Corporation (“MVHC”). MVHC was required to provide rent subsidies to at least 15 per cent of the tenants residing in the complex, pursuant to a separate eligibility criteria. SA had received rental assistance every year from 1992 to 2014.
Applicants for rental assistance would only be considered eligible for consideration by MVHC if they had less than $25,000 in assets. MVHC refused SA’s application for assistance in 2015 on grounds that she had failed to provide information about her assets, namely the value of the discretionary trust, of which she was a co-trustee and beneficiary. The Court of first instance held that SA was required to disclose the value of the trust before MVHC could consider her application for rental assistance and the British Columbia Court of Appeal dismissed her appeal, holding that the trust was an asset of SA’s.
The Supreme Court of Canada disagreed, holding that the trust had the essential features of a Henson Trust. The terms of the trust did not confer any fixed entitlements on SA. She could not compel the trustees to make payments to her and she was precluded from unilaterally collapsing the trust for her benefit. Her interest in the trust was a “mere hope” that some or all of the trust property would be distributed to her at some point in the future. Such trust arrangements cannot be said to enrich the person with disabilities, especially when the trust property is beyond that person’s control.
The Court found that “assets” should be understood to mean an applicant’s property or interests in property that can be used to discharge their debts and liabilities, including monthly rent. SA’s interest in the trust did not fall within the meaning of the word “assets” as she was unable to compel the trustees to make any distributions to her or for her benefit. The Court found that the value of the trust fund was not at all pertinent to the determination of her eligibility to receive rental assistance.
The Court declared that SA had a right to have her application for rent subsidy considered by MVHC and that her interest in the trust is not an “asset” for the purpose of such determination. The Court remitted the matter back to the court of first instance for the determination of SA’s application for assistance in light of the Court’s declaration.
This decision is important to those concerned about providing for their loved ones with disabilities. It provides welcome confirmation that a properly drawn discretionary trust remains an effective estate planning tool to provide financial security for a disabled family member in a way that preserves eligibility for government and community benefits.
The author would like to thank Modasir Rajabali, Student-at-law, for his assistance in preparing this blog.