Henson trust
Encyclopedia
A Henson trust in Canadian
law, is a type of trust designed to benefit disabled
persons. Specifically, it protects the assets (typically an inheritance
) of the disabled person, as well as the right to collect government benefits and entitlements.
The key provision of a Henson trust is that the trustee
has "absolute discretion" in determining whether to use the trust asset
s to provide assistance to the beneficiary
, and in what quantity. This provision means that the assets do not vest
with the beneficiary and thus cannot be used to deny means-tested
government benefits. An example of such a benefit is the Ontario Disability Support Program.
In addition, the trust may provide income tax
relief by being taxed at a lower marginal rate than if the beneficiary's total assets were considered. However if the trust was established for a person with a disability in Canada, who has qualified for the Disability Tax Credit the trustees can use the "Preferred Beneficiary election" and attribute the trust income to the beneficiary of the trust without actually paying it out. The trust beneficiary would file a tax return as if they earned the trust income. The trust beneficiary would use their personal exemptions and tax credits to reduce their taxable income. It can also be used to shield assets from matrimonial division in case of divorce
of the beneficiary. In most cases, the trust assets are immune from claims by creditors of the beneficiary.
The Henson trust was first used in Ontario
in the late 1980s. It became of wider interest when the Supreme Court of Ontario
ruled in 1989 that the trust assets were not vested in the beneficiary and thus could not be used to terminate government benefit programs.
A Henson trust can be established as either a living trust, or a testamentary
trust.
, Ontario
had set up an absolute discretionary trust for his daughter. The Ontario Ministry of Community and Social Services took his daughter to court, arguging that she had assets. The Supreme Court of Ontario (later the Court of Appeal for Ontario) ruled that she didn't have assets, as they weren't for her to use.
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
law, is a type of trust designed to benefit disabled
Disability
A disability may be physical, cognitive, mental, sensory, emotional, developmental or some combination of these.Many people would rather be referred to as a person with a disability instead of handicapped...
persons. Specifically, it protects the assets (typically an inheritance
Inheritance
Inheritance is the practice of passing on property, titles, debts, rights and obligations upon the death of an individual. It has long played an important role in human societies...
) of the disabled person, as well as the right to collect government benefits and entitlements.
The key provision of a Henson trust is that the trustee
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
has "absolute discretion" in determining whether to use the trust asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
s to provide assistance to the beneficiary
Beneficiary (trust)
In trust law, a beneficiary or cestui que use, a.k.a. cestui que trust, is the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary will normally be a natural person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often...
, and in what quantity. This provision means that the assets do not vest
Vesting
In law, vesting is to give an immediately secured right of present or future enjoyment. One has a vested right to an asset that cannot be taken away by any third party, even though one may not yet possess the asset. When the right, interest or title to the present or future possession of a legal...
with the beneficiary and thus cannot be used to deny means-tested
Means test
A means test is a determination of whether an individual or family is eligible for help from the government.- Canada :In Canada means tests are used for student finance , and "welfare" . They are not generally used for primary education and secondary education which are tax-funded...
government benefits. An example of such a benefit is the Ontario Disability Support Program.
In addition, the trust may provide income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
relief by being taxed at a lower marginal rate than if the beneficiary's total assets were considered. However if the trust was established for a person with a disability in Canada, who has qualified for the Disability Tax Credit the trustees can use the "Preferred Beneficiary election" and attribute the trust income to the beneficiary of the trust without actually paying it out. The trust beneficiary would file a tax return as if they earned the trust income. The trust beneficiary would use their personal exemptions and tax credits to reduce their taxable income. It can also be used to shield assets from matrimonial division in case of divorce
Divorce
Divorce is the final termination of a marital union, canceling the legal duties and responsibilities of marriage and dissolving the bonds of matrimony between the parties...
of the beneficiary. In most cases, the trust assets are immune from claims by creditors of the beneficiary.
The Henson trust was first used in Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
in the late 1980s. It became of wider interest when the Supreme Court of Ontario
Supreme Court of Ontario
The Supreme Court of Ontario was a superior court of the Canadian province of Ontario. Now defunct, in 1989 the Courts of Justice Amendment Act, 1989 was enacted by the Government to create one large superior trial court for Ontario...
ruled in 1989 that the trust assets were not vested in the beneficiary and thus could not be used to terminate government benefit programs.
A Henson trust can be established as either a living trust, or a testamentary
Will (law)
A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his/her estate and provides for the transfer of his/her property at death...
trust.
The case
Leonard Henson of GuelphGuelph
Guelph is a city in Ontario, Canada.Guelph may also refer to:* Guelph , consisting of the City of Guelph, Ontario* Guelph , as the above* University of Guelph, in the same city...
, Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
had set up an absolute discretionary trust for his daughter. The Ontario Ministry of Community and Social Services took his daughter to court, arguging that she had assets. The Supreme Court of Ontario (later the Court of Appeal for Ontario) ruled that she didn't have assets, as they weren't for her to use.