Henson Trusts and ODSP: How They Work in Ontario

If a family member receives Ontario Disability Support Program (ODSP) benefits, an inheritance or life insurance payout can create a problem. Money that lands directly in their hands may be counted against them. A Henson trust is one way families try to leave money without disrupting benefits.

This article explains in plain terms how ODSP treats a Henson trust, what kinds of payments come out of one, and what to think about when choosing a trustee. Every trust is different, so treat this as background and not a substitute for advice on your own documents.

What a Henson trust is

A Henson trust is an absolute discretionary trust. The word discretionary means the trustee, not the person with the disability, decides whether to pay anything out and when. The beneficiary cannot demand payment.

That feature is what drives the ODSP treatment. Under ODSP rules, a true absolute discretionary trust is not counted as an asset, no matter how much capital it holds. The word true matters: the trust has to actually work that way, and ODSP looks at the wording of each trust.

Why ODSP treats it differently

Because the trustee decides whether to pay and has no obligation to do so, a payment from a Henson trust is treated as a voluntary payment under ODSP. The trust itself is not treated as something the recipient owns.

Compare that with a trust that is not fully discretionary. An ODSP recipient's beneficial interest in trusts whose capital comes from an inheritance or life insurance proceeds and is available for maintenance is exempt only up to a combined $100,000, together with the cash surrender value of life insurance. A Henson trust avoids that cap when it qualifies.

What payments are allowed

Payments out of the trust can still affect ODSP, depending on what they are for. Payments from a trust, life insurance policy, gifts or voluntary payments used for disability-related items or services approved by the Director, or for approved disability-related education or training expenses, are fully exempt.

Other trust, life insurance, gift or voluntary payments are exempt as income only up to $10,000 in any 12-month period. Amounts above that count as income in the month received. These limits are set by regulation and can change, so confirm the current figures with ODSP or a lawyer before relying on them.

• Ask whether an expense is disability-related and approved before the trustee pays it.
• Keep track of other payments over any 12-month period.
• Have the trustee keep receipts showing what each payment was for.

Who can be trustee and what they do

Who may act as trustee depends on how the trust document is written and on the law that applies to trustees generally. A trustee of a Henson trust has real responsibilities: deciding on payments, investing the money carefully and keeping records. A family member who understands the beneficiary's needs can be a good fit, but the role also takes time and care, and a lawyer can help you weigh the choice.

Trustees can generally pay an expense personally and recover the same amount from the trust property, although the court may later disallow it. A trustee who is unsure how to manage trust property can apply to the Superior Court of Justice for the court's opinion, advice or direction.

Pitfalls and next steps

Two timing and ownership points catch families out. First, an ODSP recipient who receives an inheritance or life insurance money directly may be given up to six months to put it into a trust, provided the trust is set up as soon as possible. Otherwise the money is treated as income in the month it is received. Second, members of an ODSP benefit unit cannot put their own money, or money they are entitled to, into a private trust and have it exempted.

• Read the trust wording to confirm the trustee's discretion is truly absolute.
• Tell ODSP about any inheritance or life insurance money promptly.
• Do not move the recipient's own funds into the trust expecting an exemption.
• Plan how the trustee will document each payment.
• Speak to a lawyer before signing or changing a trust.

Frequently asked questions