The Henson Trust was first used in Ontario in the late 1980s. It became of wider interest when the Supreme Court of Ontario ruled that the assets of the trust were not those of the beneficiary and thus could not be used to eliminate government benefits. In Ontario, the best way of providing for our family members with disabilities while at the same time keeping their entitlement to the Ontario Disability Support is by the use of an Absolute Discretionary Trust. The terms “Discretionary Trust” ,”Henson Trust Ontario” and “Absolute Discretionary Trust”, are often used interchangeably but all three when used in the context of planning for a person with a disability refer to a very specific type of trust. The Henson trust can be established either as an Inter Vivos or a Testamentary Trust
Henson Trust Benefits
The main benefit of a Henson Trust is that the trustee has discretion on whether to use the trust assets to provide assistance to the beneficiary, and the amount of that assistance. This benefit means that the assets do not go against with the beneficiary and thus cannot be used to deny government benefits. For, example, if a Henson Trust is set up the Ontario Disability Support Program can’t be eliminated.
In addition, the trust may provide tax relief by being taxed at a lower rate than if the trustee’s total assets were considered. Furthermore, 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 recipient would use their personal exemptions and tax credits to reduce their taxable income. It can also be used to shield assets if the beneficiary was to go through a divorce. In most cases, the trust assets are immune from claims by creditors of the beneficiary.