The Downsides of Henson Trusts in Ontario: What You Need to Know

Henson Trusts are a popular estate planning tool in Ontario, but they aren't without their drawbacks. In this article, we'll explore the key limitations and risks of Henson Trusts that every Ontario resident should be aware of when considering their estate plan.

• What is a Henson Trust?
• Eligibility Requirements
• Loss of Government Benefits
• Limited Control and Access
• Complexity and Cost
• Beneficiary Obligations
• Uncertain Future
• Is a Henson Trust Right for You?

What is a Henson Trust?

A Henson Trust, also known as a discretionary trust, is an estate planning tool used in Ontario to provide for a beneficiary with a disability without jeopardizing their eligibility for government assistance programs like the Ontario Disability Support Program (ODSP). The trust holds assets on behalf of the beneficiary, and the trustee has full discretion over if and when distributions are made from the trust. This allows the beneficiary to maintain their government benefits, as the trust assets are not considered part of their personal income or assets.

Eligibility Requirements

Not everyone with a disability is eligible for a Henson Trust. To qualify, the beneficiary must be receiving government disability benefits, have a physical or mental disability that is expected to last for their lifetime, and be incapable of managing their own financial affairs. This can exclude some individuals with less severe or temporary disabilities. Additionally, the trust must be properly structured to meet the legal requirements, which can be complex and challenging to navigate without the help of an experienced estate planning lawyer.

Loss of Government Benefits

One of the primary purposes of a Henson Trust is to allow the beneficiary to maintain their government disability benefits. However, this is not a guarantee. If the trust is not set up or administered correctly, or if the beneficiary's circumstances change, they could risk losing some or all of their government assistance. This would defeat the entire purpose of the trust and leave the beneficiary in a potentially worse financial situation.

Limited Control and Access

With a Henson Trust, the beneficiary has very limited control over the trust assets and distributions. The trustee has full discretion over if and when to make distributions, and the beneficiary has no legal right to demand access to the trust funds. This can be frustrating for beneficiaries who may have specific needs or desires for how the trust assets should be used. It also means the beneficiary has no ability to manage the trust investments or make decisions about the trust.

Complexity and Cost

Henson Trusts are complex legal instruments that require careful planning and ongoing administration. Establishing a Henson Trust can be a costly endeavor, with legal fees and ongoing trustee fees that can add up over time. Additionally, the trust must be monitored and updated as laws and the beneficiary's circumstances change. This can make Henson Trusts inaccessible for some families with limited financial resources.

Beneficiary Obligations

While the beneficiary of a Henson Trust has limited control, they do have certain obligations. They must report any distributions from the trust to the government, and the trust assets could be considered in determining their eligibility for means-tested government benefits. This adds an extra layer of complexity and record-keeping that the beneficiary must manage.

Uncertain Future

One of the biggest downsides of a Henson Trust is the uncertainty around its long-term viability. The laws and regulations surrounding Henson Trusts and government disability benefits can change over time, potentially jeopardizing the trust's effectiveness. There's also the risk that the trustee may become incapacitated or pass away, leading to disruptions in the trust's administration. This can leave the beneficiary in a vulnerable position, without a clear path forward.

Is a Henson Trust Right for You?

Henson Trusts can be a valuable estate planning tool for some individuals with disabilities in Ontario, but they aren't a one-size-fits-all solution. It's important to carefully consider the potential drawbacks and limitations, as well as your specific needs and circumstances, before deciding if a Henson Trust is the best option for you or your loved one. Working with an experienced estate planning lawyer can help you navigate this complex landscape and ensure you make the right choice for your family.

FAQs

What are the main disadvantages of a Henson Trust?

The key drawbacks of a Henson Trust include the risk of losing government benefits, limited control and access for the beneficiary, the complexity and cost of setting up and maintaining the trust, ongoing obligations for the beneficiary, and the uncertain future of the trust due to potential changes in laws and regulations.

Can a Henson Trust be terminated?

Terminating a Henson Trust is generally very difficult, as the trust is designed to last for the lifetime of the beneficiary. The trust can only be terminated in limited circumstances, such as if the beneficiary's disability is no longer considered permanent or if the trust becomes prohibitively expensive to administer.

What are some alternatives to a Henson Trust?

Alternatives to a Henson Trust include a Registered Disability Savings Plan (RDSP), a Qualified Disability Trust (QDT), or simply holding assets in the beneficiary's own name. Each option has its own advantages and disadvantages, so it's important to carefully evaluate your specific needs and circumstances.

Can a Henson Trust be challenged in court?

Yes, it is possible for a Henson Trust to be challenged in court, though the grounds for doing so are limited. Common reasons for challenging a Henson Trust include allegations of improper trust administration, breaches of fiduciary duty by the trustee, or changes in the beneficiary's circumstances that may warrant a review of the trust's terms.

How can I ensure my Henson Trust is set up correctly?

To ensure your Henson Trust is properly established and administered, it's essential to work with an experienced estate planning lawyer who specializes in this area of law. They can help you navigate the complex legal requirements, draft the trust documents, and provide ongoing guidance to the trustee to protect the beneficiary's interests.