- A Henson trust is the common name for an absolute discretionary trust, where the trustee has absolute and sole discretion over payments to the beneficiary.
- Under ODSP policy this kind of trust is not counted as an asset, so its capital may exceed $100,000.
- Payments out of the trust can still count as income in the month received unless an exemption applies.
- A person who is entitled to an inheritance cannot place that inheritance into such a trust to avoid the asset test.
If a relative receives Ontario Disability Support Program (ODSP) benefits, a direct inheritance can create a problem. Money left to them outright may count against the limits that decide whether benefits continue. Families often ask how they can leave something for the person without putting their support at risk.
A Henson trust is the tool most often discussed. This article explains how ODSP policy treats it, how payments from it are handled, and the mistakes families should avoid. It is general information, and a lawyer should look at your family's wills, trust drafting and ODSP situation together.
What a Henson trust is
The ODSP directives describe an absolute discretionary trust, commonly called a Henson trust. The key feature is that the trustee has absolute and sole discretion over any payments to the beneficiary. The beneficiary cannot demand money from the trust. The trustee decides whether, when and how much to pay, and that is the reason the trust is treated differently from money the person owns outright.
The idea is that the money is held by a trustee rather than passing directly to the person on ODSP. The trustee should be someone reliable, because the role involves real responsibility and judgment.
How ODSP treats the trust
Under ODSP policy, an absolute discretionary trust is not counted as an asset, and its capital may exceed $100,000. That matters because other inheritance or insurance trusts available for maintenance are subject to a $100,000 combined limit together with the cash surrender value of life insurance, and that limit does not apply to absolute discretionary trusts.
| Type of trust | How ODSP treats it |
|---|---|
| Absolute discretionary (Henson) trust | Not counted as an asset; capital may exceed $100,000 |
| Other inheritance or insurance trusts available for maintenance | Subject to a $100,000 combined limit with life insurance cash surrender value |
The wording of the trust matters. A trust that gives the beneficiary a right to demand funds is not the same as one with absolute and sole discretion in the trustee. Poor drafting can defeat the purpose, so the document should be prepared with ODSP rules in mind.
What happens when the trustee pays money out
Even though the trust itself is not an asset, payments from it to an ODSP recipient are income in the month received unless they are exempt. The exemptions listed in the directives include:
- Up to $10,000 in any 12-month period for any purpose.
- Approved disability-related items and services.
- Non-reimbursable education or training.
- A principal residence.
- An exempt vehicle.
- First and last month's rent.
These exemptions depend on an annual report of trust transactions. A trustee therefore needs to keep clear records of every payment and be ready to report them. How a particular payment will be treated depends on the situation, so it is worth confirming with a lawyer before making it.
Mistakes and limits to know about
The most important limit is that a person who is entitled to an inheritance cannot put that inheritance into an absolute discretionary trust to avoid the asset test. It does not work as a rescue after the person has already become entitled.
If a child is involved, separate rules apply. Where a child is to receive $35,000 or less, the money usually need not go into court and may be paid to a parent the child lives with or the person with lawful custody; above $35,000 it is paid into court unless a court-appointed guardian of property is in place. How this applies to a child with a disability depends on your situation, so it is worth confirming with a lawyer.
Other points depend on your facts, including how the trust is taxed, who should be trustee and what happens to leftover money after the beneficiary dies. Confirm these with a lawyer or accountant.
What to do next
- Confirm what benefits your relative receives and what their current assets and income are.
- Review existing wills of family members who might leave your relative money, since a direct gift can cause problems.
- Think about who could serve as trustee, and who could take over later.
- Ask a lawyer to draft or review the trust wording against current ODSP policy.
- Keep a record system for every trust payment and for the annual report of trust transactions.
- Check with ODSP or a lawyer before the trustee makes any large payment.
Frequently asked questions
Does a Henson trust count as an asset for ODSP?
Under ODSP policy, an absolute discretionary trust is not counted as an asset, and its capital may exceed $100,000. The trustee must truly have absolute and sole discretion over payments.
Can I put my own inheritance into a Henson trust after I receive it?
No. ODSP directives say a person entitled to an inheritance cannot put it into an absolute discretionary trust to avoid the asset test. How to plan around this depends on your situation, so it is worth confirming with a lawyer.
Do payments from the trust affect ODSP?
They can. Payments are income in the month received unless exempt, such as up to $10,000 in any 12-month period for any purpose or certain approved items like first and last month's rent. The exemptions depend on an annual report of trust transactions.
Is there a dollar cap on a Henson trust?
For other inheritance or insurance trusts there is a $100,000 combined limit, but that limit does not apply to absolute discretionary trusts. Capital in such a trust may exceed $100,000.
Sources
- Ontario – ODSP Policy Directives 4.7 Funds held in trust — ontario.ca
- Ontario – Guardianship of a child's money and property — ontario.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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