- A Henson trust is a testamentary trust (created in a will) that gives the trustee absolute discretion over whether to make any distribution to the beneficiary.
- A Qualified Disability Trust (QDT) is a concept in the Income Tax Act.
- A Henson trust and a QDT are not mutually exclusive.
If you have a loved one with a disability, you have likely heard of the Henson trust — Ontario's tool for protecting a disabled beneficiary's ODSP benefits. You may also have heard of the Qualified Disability Trust (QDT), a tax concept under the federal Income Tax Act. These two terms are often confused, but they address completely different problems: one protects government benefits, the other reduces income tax.
Understanding the distinction — and how the two can work together — is essential for estate planning that genuinely serves a disabled family member.
The Henson Trust: Protecting Government Benefits
A Henson trust is a testamentary trust (created in a will) that gives the trustee absolute discretion over whether to make any distribution to the beneficiary. Because the beneficiary has no entitlement to receive anything from the trust, the trust assets are generally not counted as the beneficiary's assets for purposes of means-tested government programs like ODSP.
The goal of a Henson trust is to:
- Preserve a disabled beneficiary's eligibility for ODSP (income support, drug coverage, dental) by keeping the trust assets outside their personal asset calculation
- Supplement — not replace — government support with private funds
- Give a trustee the flexibility to pay for the beneficiary's quality of life (travel, equipment, education, recreation) in ways ODSP does not cover
The Henson trust is a structure, not a tax concept. Its critical feature is absolute discretion in the trustee. If any language in the will gives the beneficiary a right to demand income or capital, the structure likely does not work as intended for ODSP purposes.
The Qualified Disability Trust: A Tax Tool
A Qualified Disability Trust (QDT) is a concept in the Income Tax Act. It is not a separate type of trust — it is a status that a testamentary trust can achieve if it meets the eligibility requirements, which results in the trust being taxed at graduated rates rather than the top marginal rate.
Most testamentary trusts are taxed at the top marginal rate. This means that income earned inside a trust and not distributed to a beneficiary is taxed heavily. QDT status allows the trust to benefit from the same graduated rate structure as an individual, which can significantly reduce the annual tax burden on income retained inside the trust.
To qualify as a QDT:
- The trust must be a testamentary trust (created in a will)
- The beneficiary must be a qualified beneficiary — a person eligible for the federal Disability Tax Credit
- The trustee and the beneficiary must jointly elect QDT status each year they want it to apply
- Only one QDT election can be made per individual — if a person could benefit from multiple testamentary trusts, only one trust can have QDT status
As of writing, verify all QDT conditions with a tax professional and consult current CRA guidance — the rules are specific and can change.
How the Two Concepts Interact
A Henson trust and a QDT are not mutually exclusive. In fact, they can — and often should — overlap.
Here is how:
| Feature | Henson Trust | Qualified Disability Trust |
|---|---|---|
| Purpose | Protect ODSP / government benefits | Reduce income tax inside the trust |
| Who it helps | Beneficiary receiving means-tested benefits | Trust with income retained inside it |
| Legal source | Ontario case law / trust drafting | Federal Income Tax Act |
| Key requirement | Absolute trustee discretion | Joint election; eligible beneficiary |
| Benefits | ODSP eligibility preserved | Graduated tax rates apply to the trust |
A trust can be both a Henson trust and a QDT if:
- The trust document is drafted with absolute discretion (Henson requirements), and
- The beneficiary qualifies for the DTC and elects QDT status (tax requirements)
In practice, most disability estate plans aim to achieve both — a single trust that protects benefits and minimizes the annual tax on income retained inside it. But the Henson structure is about the trust document; QDT status is about the annual election to CRA. The two require attention at different points in time.
What Happens Without Both?
If you draft a trust without the Henson structure (for example, the beneficiary has a right to all income each year), the trust assets or income may push them over the ODSP asset or income limit, causing loss of benefits. This can happen even if the trust was well-intentioned.
If the trust qualifies as a Henson trust but you never file the QDT election, the trust will pay tax at the top marginal rate on any income retained inside it. Over a multi-decade trust, this can mean substantial tax waste.
The Role of the Disability Tax Credit
The Disability Tax Credit (DTC) is a non-refundable federal tax credit that reduces income tax for eligible individuals with significant impairments. QDT eligibility requires the beneficiary to be a "DTC-eligible individual." If your family member with a disability has never applied for or been approved for the DTC, this needs to happen as part of the estate plan — it affects both the QDT election and a range of other programs. Verify current DTC criteria with CRA.
Practical Planning Steps
- Draft a Henson trust in your will with careful absolute-discretion language — get an estate lawyer to do this
- Confirm your beneficiary's DTC eligibility — apply if not already approved
- Each year, the trustee and beneficiary jointly elect QDT status on the trust's T3 return — get a tax professional to handle this
- Coordinate with ODSP — understand what distributions the trust can make and how ODSP will treat them
- Write a letter of wishes for the trustee, explaining the beneficiary's needs and your intentions
Frequently asked questions
Can a Henson trust exist without QDT status?
Yes — and this was the case before the QDT rules were introduced. A Henson trust without QDT status still protects ODSP; it just doesn't get the graduated tax rate benefit. Many families have both.
Can a non-resident or someone without DTC approval qualify for QDT?
No. Both Canadian residency and DTC eligibility are required. This needs to be confirmed before planning around QDT status.
What if the beneficiary dies before the trust ends?
The QDT election simply stops — no further elections are made. The trust continues on standard tax terms for whatever remains and then distributes to the remainder beneficiaries per the will.
Does the QDT election need to be made every year?
Yes, it is an annual election — not a one-time filing. The trustee and beneficiary (or their representative) must elect each year they want QDT treatment.
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