Canada’s top court reviews the concept of Henson Trusts for the first time in a case involving a B.C. woman with disabilities.
By: Ken M. Kramer, Q.C. and Audrey Jun, KMK Law Estate Lawyers – www.kmklaw.net
What are Henson (discretionary) Trusts?
Henson Trusts are a common way for people to plan for their loved ones who receive social/disability assistance benefits. However, most provincial governments place limitations on the amount of assets that Persons with Disabilities (PWD) recipients of disability benefits can hold. In B.C., a single PWD who qualifies for disability assistance may hold assets up to $100,000 (with some notable exemptions, such as a vehicle, an RDSP, and their principal place of residence).
However, a PWD may be a beneficiary and receive money indirectly via a Discretionary (Henson) Trust (Trust) without a limit on the amount of funds held within the Trust. The reason being that in a discretionary trust, the trustee who legally owns the trust assets, has absolute authority over the trust payments. If the trust is properly structured so that a PWD cannot collapse the trust and take it’s assets at will, the Ministry of Social Development and Poverty Reduction (MSDPR) will not consider that trust to be the PWD’s asset and therefore it will assist in maintaining and safeguarding their eligibility for disability benefits.
What happened in this case?
In S.A. vs. Metro Vancouver Housing Corporation, a woman with disabilities, S.A., lived in a housing complex owned by Metro Vancouver Housing Corporation (MVHC), a non-profit society that operates subsidized housing complexes. S.A.’s disabilities prevented her from working, and therefore she received her income via provincial disability benefits. She also began receiving annual rental assistance from MVHC since she began living in the complex in 1992.
In March 2012, after S.A.’s father’s will was altered by a court order, part of his estate was placed in a discretionary trust for S.A.’s care and maintenance. The trust terms confirmed that the two co-trustees, who were S.A. and her sister, together have absolute discretion to pay as much of the income and capital they decide is necessary or advisable for S.A.’s care, maintenance, education or benefit. S.A. could not compel the trustees to make any payments to her, and she did not have the power to collapse or end the trust. MSDPR had also reviewed S.A.’s trust and determined in 2014 that it was discretionary, and accordingly, did not view the Trust as an asset for their purposes.
However, S.A.’s tenancy agreement required her to provide income verification to MVHC every year as part of her income assistance application, and at any time if there was a change in her annual income. The rental assistance application required that applicants disclose whether they have assets in excess of $25,000, although the definition of “assets” from a separate policy document was not incorporated into the form. In 2015, MVHC requested that S.A. disclose the balance of the trust. S.A. replied in a letter refusing disclosure, saying that her interest in the trust was not an “asset” for the purposes of determining her eligibility. She enclosed an assistance application for 2015 along with the letter, ticking “no” in response to the question of whether she had assets in excess of the limit. Accordingly, S.A. stopped receiving rental assistance from MVHC in mid-2015.
The SCC Decision
The Supreme Court of Canada found that S.A.’s interest in the trust should not be treated as an asset for the purposes of her rental assistance application with MVHC. The court found that the trust had the essential features of a Henson Trust – the trustees had absolute discretion over payments to S.A., and S.A. could not collapse the trust on her own. Notably, although S.A. was appointed co-trustee along with her sister, the court clarified that this appointment was irrelevant to the determination of her interest under the trust, as in her trustee capacity, S.A. was required to reach decisions unanimously with her co-trustee, and must exercise her discretion in accordance with the Trust terms and in compliance with her fiduciary obligations as a trustee.
The court assessed the word “assets” in the context of MVHC’s rental assistance application, and came to the conclusion that assets, in this case, meant property that a person could use to pay their monthly rent, among other debts and liabilities. The court concluded that since S.A. could not rely on the trustees to actually make payments to her, the Trust’s value was found to be irrelevant in determining her eligibility under MVHC’s application.
What does this SCC decision mean for people with disabilities in British Columbia and Canada?
The Supreme Court of Canada has reiterated and provided assurance that Henson Trusts continue to remain a useful tool to set aside money or other valuable property for the benefit of a person with disabilities in a manner that minimizes risk to that person’s entitlement to receive social/disability benefits. This is good news for parents and grandparents who wish to ensure that their children/grandchildren with disabilities continue to qualify for disability assistance benefits. It also avoids past practices where well-meaning parents disinherited their children with disabilities and instead gifted that money to others, to avoid disqualifying such children from disability assistance.
The court’s discussion of S.A.’s dual capacity as trustee and beneficiary may open the door to beneficiaries of discretionary trusts being appointed as co-trustees, which would give them some degree of control over their Henson Trusts. However, one important note is that this case analyzed Henson Trusts in the specific context of MVHC’s Rental Assistance application and the use of the word “assets”. This emphasizes the importance of carefully structuring discretionary trusts in light of the legislation and contractual program terms that apply to the variety of benefits that a beneficiary with disabilities may receive. Accordingly, careful planning for families of people with disabilities must be in place to ensure that PWD’s continue to be supported while ensuring that the necessary precautions are in place to safeguard their access to disability benefits and other associated programs.