How families can provide financial security for a loved one with disabilities without jeopardizing their eligibility for provincial benefits.
Some of the biggest estate planning problems arise when people fail to plan. For families of a loved one with a disability, problems can arise even when they do.
If a beneficiary of an estate receives disability benefits, an act of generosity can accidentally lead to devastating consequences. That well-intentioned inheritance might disqualify them from the provincial support they rely on.
Which raises the question: how do you provide for someone financially without interfering with the safety net designed to support them?
One option is a “Henson Trust,” known within disability planning circles for meeting their needs. And despite the name, it has nothing to do with puppets.
The Problem with Having Money
Across Canada, individuals who qualify for provincial disability assistance programs receive important benefits: monthly income assistance, access to health supports, and other forms of aid.
But these programs are designed with financial eligibility rules. If a person owns too many assets, they can lose eligibility.
For example, in British Columbia, a single person receiving disability assistance under the Persons with Disabilities (PWD) designation benefits can generally hold up to $100,000 in assets. Anything beyond that threshold can jeopardize benefits.
While these eligibility rules are widely used across Canada, the details of each province’s disability support systems involve different requirements for asset thresholds, exempt assets, and treatment of trust distributions. As a result, planning that works in one province may need to be adjusted in another. The core principle, however, remains consistent: preserving access to benefits while enhancing quality of life.
From a policy standpoint, the government’s reasoning makes sense. Benefits are targeted toward people without significant personal assets. But from a family perspective, it feels strange. A parent wants their child to have security, not to replace one support system with another.
This is where estate planning becomes less about money and more about architecture. The key here is control.
The Henson Trust Solution
A Henson Trust is a trust designed to ensure the beneficiary does not control the trust assets. Instead, the assets are managed by a trustee who has discretion over how and when to make distributions.
The terms of the trust should give the trustee the flexibility to cover housing costs, medical expenses, education, travel, equipment, assistive technology, everyday expenses, and contributions to a Registered Disability Savings Plan. However, the beneficiary cannot demand payment or exercise control over the trust.
Because of that distinction, assets from a Henson Trust are not considered the beneficiary’s assets for disability assistance purposes. The trust supplements government benefits rather than replaces them. Although the precise treatment of trusts can vary by province, fully discretionary trusts of this nature are commonly used across Canada to preserve eligibility for disability benefits.
This structure originates from a Canadian court case called Ontario (Director of Income Maintenance) v. Henson. The courts recognized that when a beneficiary has no enforceable right to the trust property, the assets should not be treated as belonging to them.
While the concept of Henson Trusts is widely understood, they are also frequently misunderstood. Many professionals know the purpose and the basic structure, yet these types of trusts are often deployed using a one-size-fits-all template without asking the deeper questions to ensure long-term sustainability.
When the structure is not tailored to the beneficiary’s needs, it can create complications the family never anticipated.
The Details Matter
A Henson Trust works because of one simple feature: the trustee must have absolute discretion. If a beneficiary can force distributions, or if the trust terms effectively guarantee payments, the government may treat the trust as the beneficiary’s asset. At that point, the protective structure collapses.
At the same time, the trust should typically be structured so that it can qualify as a Qualified Disability Trust (QDT) under federal tax rules. QDT status allows the trust to access the same graduated tax rates available to individuals, which can significantly reduce the tax burden on trust income.
This is why the choice of trustee matters so much. The trustee’s job is not simply to guard the money. It is to use the trust strategically to enhance the beneficiary’s life.
A Henson Trust is one piece of the broader planning puzzle. Families should also consider how other assets will flow on death. Beneficiary designations of life insurance, RRSPs, RRIFs, TFSAs, and pensions are often made without proper consideration. If an adult with a disability is listed as the designated or contingent beneficiary, those funds bypass the Henson Trust and land in the beneficiary’s hands, creating the exact eligibility problem the trust was designed to avoid. Good planning ensures these designations are coordinated with the overall structure.
Which brings us back to the estate planning paradox at the heart of this issue. Parents naturally want to provide independence and security for their child. Government programs exist because independence is not always possible without support. A properly designed Henson Trust allows both systems to coexist. It supplements government benefits rather than replacing them.
The goal of this planning is simple. Parents want their child to be secure, comfortable, and able to live with dignity. A well-designed Henson Trust can help ensure that a well-intentioned inheritance does exactly that, instead of accidentally doing the opposite.
Contributor:
Max S.J. Shilleto, Lawyer, Lawson Lundell LLP
Phone: 604-408-5408 | Email: [email protected]
Please note that all views and opinions expressed by contributors should be recognized as theirs alone, and do not necessarily reflect the official policies or position of Plan Institute
