When a loved one lives with a disability, estate planning involves much more than dividing assets. It focuses on ensuring long‑term financial security while preserving access to crucial government benefits.

In Ontario, a Henson trust, often called an “absolute discretionary trust,” is an estate planning tool that allows individuals (typically parents) to set aside money or other valuable assets for a beneficiary with disabilities. It is designed to allow the beneficiary to receive financial support, without jeopardizing their eligibility for social assistance or access to publicly funded program benefits.

What is a Henson trust in Ontario?

A Henson trust is a type of discretionary trust created inter vivos during the settlor’s lifetime, or as a testamentary trust established on death under the terms of a will to benefit a person with a disability, without giving them a guaranteed right to receive the trust’s income or capital. While there is no limit on the amount of assets that can be contributed to a Henson trust, it is important to keep in mind that provincial or territorial disability-related support programs are based on income- or asset- tests, meaning that individuals cannot own certain assets or earn or receive income in excess of specified amounts.

How does a Henson trust protect ODSP eligibility in Ontario?

In Ontario, the Ontario Disability Support Program (“ODSP”) provides assistance to individuals with mental or physical disabilities. To remain eligible for ODSP, a person cannot hold more than $40,000 in non-exempt assets. For example, if a beneficiary receives an inheritance outright, it will likely be treated as an asset (or income in the month it is received), which can push the beneficiary over eligibility thresholds and cause their benefits to be suspended or terminated. A properly drafted Henson trust ensures that a beneficiary’s interest is excluded from asset calculations by not providing the beneficiary with an enforceable right to demand payments.

While the Henson trust protects the trust’s capital from being counted toward the ODSP asset limit, any funds that are actually distributed to the beneficiary are still subject to income rules established by the ODSP regulations. The rules differentiate between payments used for disability-related expenses and those intended for general living. As such, payments made from a Henson trust for approved disability-related items and services are fully exempt as income, with no limit on the amount that may be provided. Examples of exempt expenses include specialized mobility equipment, therapies not covered by the government, accessibility-related home renovations, and attendant care services.

In contrast, there is a $10,000 limit for other payments, including discretionary payments from a trust, in a 12-month period. Any amount above this threshold distributed for non-disability related items would typically be deducted from the recipient’s monthly ODSP payments. The primary nuance in making such distributions lies in properly characterizing the expense to ensure it falls within the ODSP exemptions.

Key requirements when drafting a Henson trust

To be legally effective in Ontario, a Henson trust must meet three structural criteria:[1]

  • Absolute and unfettered trustee discretion: The trustee must have ultimate discretion with respect to payments out of the trust to the person with disabilities for whom the trust was settled.
  • No right to compel payments: The beneficiary cannot have any enforceable entitlement to the trust’s income or capital. In other words, the beneficiary cannot compel the trustees to make payments to him or her.
  • No ability to collapse the trust: The drafting must prevent the beneficiary from ending the trust early (avoiding a Saunders v. Vautier-style collapse) by ensuring they are not the sole person entitled to the funds or by limiting their control.

Although the Henson trust concept was widely accepted and used in practice, it had not been considered by the Supreme Court of Canada (the “SCC”) until the 2019 decision in S.A. v. Metro Vancouver Housing Corp. In that case, the SCC confirmed that Henson trusts remain an important and reliable estate‑planning tool for protecting disabled beneficiaries.

Tax planning opportunities: QDT and preferred beneficiary elections

As with any other trust, a Henson trust is a separate taxpayer that must file its own tax returns. While income earned and retained by a Henson trust is generally taxed at the highest marginal tax rate, there are two (2) primary exceptions that allow for more favourable treatment:  

  • Qualified disability trust (QDT) is a testamentary trust (one established through a will) that elects to have its earned and retained income taxed at graduated tax rates rather than the top marginal rate. To qualify, the trust and at least one beneficiary must make a joint annual election, and the electing beneficiary must be eligible for the federal Disability Tax Credit. However, it is important to note that the electing beneficiary can only be an electing beneficiary for one QDT at a time. By accessing graduated rates, the Henson trust can significantly reduce its tax liability on income that is not distributed to the beneficiary.
  • Preferred beneficiary election allows income that is earned and retained in either an inter vivos or testamentary trust to be taxed as if it had been distributed to the beneficiary. To utilize this exception, the trust and the “preferred beneficiary” file a joint election to have some or all of the trust’s income taxed on the beneficiary’s personal tax return. This allows the trust to take advantage of the beneficiary’s likely lower marginal tax rates while keeping the actual funds within the trust for protection. To be eligible for the preferred beneficiary election, the beneficiary must be a Canadian resident and either qualify for the Disability Tax Credit or be a dependent adult with a physical or mental infirmity. There must also be a specific family relationship between the person who established the trust (the settlor) and the beneficiary (e. g., child, grandchild, or spouse).

While both exemptions can significantly reduce the tax burden on the trust itself, care must be taken to ensure the beneficiary has the funds to pay the resulting tax bill without jeopardizing their government benefits.

Why legal advice is critical for families

For many families, a well‑structured Henson trust provides peace of mind: knowing that a loved one with a disability will have supplemental financial support managed by trusted decision‑makers, without unnecessarily jeopardizing vital government programs.

If you have a child or family member receiving ODSP or living with a disability, Miller Thomson’s estates team can help you determine whether a Henson trust is right for your situation and how it can fit within your broader estate plan. Contact our Private Client Services lawyers about creating or updating your will and trust structure.

[1] S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4.