Henson Trusts in Ontario: Protecting a Disabled Beneficiary's ODSP Eligibility

If you have a child or other loved one who receives Ontario Disability Support Program (ODSP) benefits, leaving them a direct inheritance can inadvertently disqualify them from the program they depend on. A Henson trust — named after a 1989 Ontario Court of Appeal decision — is the planning tool that solves this problem. Understanding how it works is one of the most important steps any Ontario parent of a disabled child can take when writing a will.

This article explains what a Henson trust is, how it interacts with ODSP asset limits, what the trustee's role looks like, and how to set one up properly as part of your estate plan.

Why a Direct Inheritance Can Be a Problem

ODSP is a means-tested program. As of writing, recipients may hold only a limited amount in assets before their eligibility is affected — verify the current thresholds with the Ontario government, as these figures change. A lump-sum inheritance that pushes the beneficiary over that limit can cause them to lose monthly income support and other benefits like drug coverage and dental.

Without planning, a parent's good intentions can trigger a gap in support at exactly the moment when the person is most vulnerable — grieving and suddenly without income.

What Makes a Henson Trust Different

A Henson trust is an absolute discretion trust. The key feature is that the trustee — not the beneficiary — has complete, unfettered discretion over whether, when, and how much to distribute from the trust. Because the beneficiary has no legal right to demand a distribution, the trust assets are generally not counted as "assets" of the beneficiary for ODSP purposes.

This is the opposite of a fixed-entitlement trust, where the beneficiary is entitled to receive payments on a schedule. That kind of entitlement would likely be treated as an asset or income by ODSP.

The Core Elements of a Valid Henson Trust

For a trust to function as a Henson trust, the trust deed (usually embedded in your will) must clearly:

• Vest absolute discretion in the trustee over all distributions
• Contain no entitlement language that gives the beneficiary a right to demand anything
• Name a trustee you trust completely — often a sibling, another family member, or a corporate trustee
• Specify what happens to remaining trust assets after the beneficiary dies (the "remainder")

If the discretion is in any way fettered — for example, if the will says "the trustee shall distribute $500 per month" — the structure may not work as intended.

How the Trustee Actually Operates the Trust

The trustee of a Henson trust carries significant responsibility. They must:

• Manage and invest the trust assets prudently (Ontario's Trustee Act and the prudent investor standard apply)
• Exercise discretion in the genuine interest of the beneficiary
• Keep records of all receipts and disbursements
• Understand what ODSP allows — certain distributions for specific purposes (e.g., rent, medical aids, recreation) are treated differently than cash income
• File trust tax returns, because the trust is a separate taxpayer under the Income Tax Act

The trustee must balance supporting the beneficiary's quality of life against preserving the trust fund for long-term care. This is a meaningful, ongoing role — not a passive one.

Choosing Your Trustee Wisely

Many families appoint a trusted sibling or other relative. This works well if that person:

• Is financially responsible
• Understands the beneficiary's needs and communicates well with them
• Will outlive the beneficiary or has a clear succession plan

If no family member is suitable, a trust company (corporate trustee) can act, usually for an annual fee. Some families use a combination: a family member and a professional co-trustee.

What Happens to the Trust Assets When the Beneficiary Dies?

Because the beneficiary never legally owned the trust assets, those assets do not form part of the beneficiary's estate at death. Instead, they pass according to the remainder clause in the trust document — typically to other family members or a charity named in the will. This is an important planning consideration: who benefits from whatever is left over?

Henson Trusts and Taxes

A Henson trust is a testamentary trust (created by will) and, if properly structured, may qualify as a Qualified Disability Trust (QDT) under the Income Tax Act — which can result in preferential tax rates. QDT status requires that the beneficiary be a "qualified beneficiary" under the Act and that a joint election be filed. Because QDT rules are technical and interact with broader tax planning, work with a tax professional alongside your estate lawyer. Verify current QDT eligibility requirements and tax rates with CRA, as the rules have evolved over time.

When Is a Henson Trust the Right Choice?

Consider a Henson trust if:

• A beneficiary in your estate plan currently receives or is likely to receive ODSP
• You want to supplement — not replace — government support with private funds
• You have enough assets to make a trust worthwhile from a cost-versus-benefit perspective
• You are able to identify a trustworthy, capable trustee

Henson trusts are also used in estate plans where the beneficiary has other government benefits that are means-tested.

Frequently asked questions