Henson Trust Canada: Protecting Disability Benefits With an Estate Plan

Parents of children with significant disabilities carry a question that doesn't have an easy answer: what happens to their child financially when the parents are no longer alive or able to manage affairs? A Henson Trust and a properly structured Power of Attorney are the two legal tools that begin to answer that question.

Neither is optional if your family owns assets and your child receives provincial disability income.

Why a Regular Inheritance Destroys Disability Benefits

Provincial disability income programs — ODSP in Ontario, AISH/ADAP in Alberta, BC Disability Assistance, and their equivalents — are means-tested. They have asset limits. A single adult receiving ODSP, for example, can typically hold no more than a few thousand dollars in assets before their monthly benefits are reduced or eliminated.

If a parent dies and leaves a standard inheritance — even a modest one of $50,000 — directly to an adult child receiving provincial disability income, that inheritance is likely to disqualify the recipient from benefits entirely until the money is spent down. The recipient is then left with the impossible choice of spending the inheritance on living costs (which the disability income was already covering) or forgoing the provincial program.

A Henson Trust solves this problem by ensuring the inheritance never legally "belongs" to the disabled person in a way that triggers the asset test.

How a Henson Trust Works

A Henson Trust is a fully discretionary trust — meaning the trustee has absolute discretion over whether to make any payments from the trust, to whom, and in what amount. Because the beneficiary cannot compel the trustee to make a payment (there is no entitlement), the assets held in the trust are generally not counted as assets belonging to the beneficiary under provincial means-testing rules.

The trust takes its name from a 1989 Ontario court case (Ontario (Director of Income Maintenance) v. Henson), which established that a fully discretionary trust does not constitute a financial asset of the beneficiary for ODSP purposes. This principle has since been applied in other provinces, though the specific rules vary by jurisdiction.

A Henson Trust can be funded through:

• A bequest in a will (testamentary trust) — the most common structure
• A life insurance policy with the trust as beneficiary
• Contributions during the parent's lifetime (inter vivos trust)

The trust can pay for items that supplement the person's life without triggering means-testing: vacations, educational programs, technology, therapeutic supports, renovations, personal items not covered by the disability program. It is not designed to replace the provincial disability income — it is designed to coexist with it.

Who Can Be a Trustee

The trustee holds substantial power and responsibility. They must exercise genuine discretion over distributions — they cannot be contractually obligated to follow the beneficiary's instructions, or the trust loses its fully discretionary character and the asset protection it provides.

Common choices include:

• A trusted sibling or other family member
• A professional trustee (trust company or law firm trust department) — expensive but removes the burden from family
• A community trustee organization in some provinces (e.g., the Community Living Trust in BC or the Planned Lifetime Advocacy Network)

Choosing a trustee requires thinking carefully about longevity (who will still be alive and capable in 30 years), reliability, and their relationship with the beneficiary. A Henson Trust with a poorly chosen trustee can fail the beneficiary just as badly as no trust at all.

A successor trustee should also be named in case the primary trustee is unable or unwilling to continue.

Power of Attorney for a Disabled Adult

A Henson Trust addresses what happens to assets after death. Power of Attorney (POA) addresses who manages financial and healthcare decisions while the parent is still alive but incapacitated — or when the young adult with a disability has reached the age of majority and needs ongoing decision-making support.

At the age of majority (18 or 19 depending on province), legal rights transfer entirely to the young adult. Parents no longer have automatic authority to access bank accounts, sign medical consent forms, or communicate with service providers on behalf of their child — regardless of the severity of the disability.

If the adult child has the cognitive capacity to grant a POA, they should do so before or shortly after reaching the age of majority. A Continuing Power of Attorney for Property governs financial decisions; a Personal Care Power of Attorney (or Health Care Directive, depending on province) governs medical and personal care decisions.

If the adult child does not have capacity to grant a POA — which is common for individuals with significant intellectual or cognitive disabilities — the family may need to seek guardianship or use the supported decision-making frameworks available in some provinces (such as Manitoba's Vulnerable Persons Act).

Getting a lawyer to draft a POA for a disabled adult costs significantly less than contested guardianship proceedings later. The baseline for a simple POA package typically starts around $550 and upward — still a fraction of the cost of emergency legal proceedings when no documents are in place.

Henson Trust vs. RDSP: Complementary, Not Competing

A Registered Disability Savings Plan and a Henson Trust serve different purposes and should both be in place for most families.

The RDSP is a lifetime savings vehicle funded during the beneficiary's life, growing tax-deferred, with government grants and bonds. It is subject to strict rules about withdrawals and the 10-year holdback on government contributions. It is not a substitute for a Henson Trust because the RDSP assets do count toward some provincial disability asset tests (the treatment varies by province — some have exempted RDSPs entirely, others have partial exemptions).

The Henson Trust holds assets after the parent's death in a structure that protects provincial disability income. It typically holds life insurance proceeds or estate assets, and the trustee distributes them over time based on the beneficiary's supplementary needs.

A complete estate plan for a family with a disabled adult child typically includes both. The Canada Post-Secondary Transition Roadmap outlines how to approach the legal planning timeline alongside the financial tools — including when to engage an estates lawyer versus when a template-based POA is sufficient.

What to Do Before Meeting a Lawyer

Before engaging an estate lawyer, clarify the following:

1. Which province does the beneficiary live in? Henson Trust rules and POA frameworks are provincial. An Ontario-drafted trust may not be appropriate if the beneficiary moves to BC.
2. What provincial disability program is in place? The asset exemption rules differ. Some provinces fully exempt Henson Trust assets; others have specific caps.
3. What is the source of funding? Life insurance is often the most practical way to fund a testamentary Henson Trust for middle-income families.
4. Is there a capable trustee? Do not name a trustee without asking them directly. The role is significant and ongoing.
5. Is there a guardianship situation? If formal guardianship has been obtained, the legal structure interacts with POA differently.

Disability-specific estate planning lawyers are a specialized subset of the general estates bar. Look for lawyers with experience in disability and special needs planning — standard wills and estates lawyers may be unfamiliar with Henson Trust mechanics and provincial means-testing rules.

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