The Supreme Court of Canada has recently ruled that a person’s interest in discretionary trust funds cannot be considered an asset for the purposes of determining eligibility to collect means-tested government benefits.
Often known as “Henson Trusts”, discretionary trusts can be used to shield the assets of a beneficiary from being considered as assets or income of the beneficiary. Henson trusts are often set up for persons with disabilities or minors. Such trusts are set up as discretionary, meaning that funds can only be drawn from the trusts in accordance with the terms set out in the trust. Depending on how the trust was drafted, this can mean that the trustee(s) will have the power to determine if a beneficiary can receive funds from the trust, or under what circumstances, or even how much may be withdrawn.
In the case which was before the Supreme Court, a woman with disabilities (“S.A.”) was residing in subsidized housing through the Metro Vancouver Housing Corporation (MVHC). She has been receiving assistance from MVHC with her rent every year from 1992 through 2015. In order to receive rent subsidies, tenants must demonstrate annually that they meet certain criteria. Eligibility for MVHC rental assistance is limited to tenants with less than $25,000.00 in total assets.
In 2012, the third of the estate of S.A.’s late father that she was due to receive was placed into a Henson trust for “her care and maintenance.” In 2015, MVHC requested that she disclose the value of that trust. They argued that it was an asset that could impact her eligibility for the rental subsidy. MVHC ruled that the trust formed on of S.A.’s assets and she was no longer eligible for subsidies. Lower courts had agreed with MVHC, and ruled that S.A. had to disclose the value of the trust in order that MVHC could determine her eligibility for benefits.
The Supreme Court disagreed. According to their decision, S.A. had “…no actual entitlement to the trust property under the terms of her trust, her interest in the trust is not an asset that could disqualify her from being considered by MVHC for a rent subsidy.” As such, S.A. was eligible to be considered by MVHC for rental assistance.
Henson trusts are often used in estate planning to provide long term benefits to a person with a disability. This ruling ensures that the careful planning which goes into the formation of such a trust will not be undone due to an individual’s need for social assistance. It recognizes that discretionary trusts do not by nature provide guaranteed income or benefit to the beneficiary, and that as a result if an individual cannot be guaranteed access to the contents of the trust, it cannot then be determined to form part of their assets. As such, governments and government agencies are not able to take the value of such trusts into consideration when determining a person’s eligibility for means-tested benefits.
The need for a discretionary ‘Henson’ trust can be an important consideration when it comes to estate planning, or in other circumstances where an individual on some form of social assistance is set to receive a large gift or settlement which could impact their ability to access means-tested government benefits.
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Blog post written by associate Karen Shedden