Henson Trusts in Ontario: Protecting a Disabled Beneficiary

For any parent or family member supporting a person with a disability, estate planning involves a question that goes beyond the ordinary: if I leave money to this person, will it disqualify them from the government support they depend on?

In Ontario, that support is often the Ontario Disability Support Program (ODSP), which provides monthly income and health benefits to people with significant physical or developmental disabilities. ODSP has asset limits — and an inheritance that exceeds those limits can cause a recipient to lose eligibility until the inherited funds are spent down. A Henson trust is the primary legal tool designed to prevent that outcome.

This article explains how a Henson trust in Ontario works, why it is structured the way it is, and what families need to think about when setting one up.

What Is a Henson Trust?

A Henson trust is a type of absolute discretionary trust — meaning the trustee has complete, unfettered discretion over whether to pay out any funds to the beneficiary at all. The beneficiary has no legal right to demand a payment and no ability to force distributions.

This structure is critical because Ontario's ODSP rules look at assets that a person is "entitled to." If a beneficiary has no legal entitlement to trust funds — because the trustee has absolute discretion whether to pay anything at all — those funds are generally not counted as the beneficiary's assets for ODSP purposes.

The trust is named after a landmark Ontario case, Henson v. Henson (commonly referred to as the Henson case), in which the court recognized that an absolute discretionary trust of this kind does not disentitle a beneficiary from ODSP. The approach has since been confirmed and refined through subsequent decisions, and the structure is now widely used across Ontario and other provinces.

Why "Absolute" Discretion Matters

Many trusts give trustees discretion. What makes a Henson trust different is that the discretion is absolute — there is no minimum guaranteed payment, no right for the beneficiary to compel a distribution, and no formula that calculates what must be paid out. The trustee decides whether to pay, how much to pay, and when.

If a trust document instead says something like "the trustee shall pay the beneficiary a monthly amount of $X" or "the beneficiary is entitled to income," that creates an entitlement. Once there is an entitlement, ODSP may treat the trust as an asset or income and reduce or terminate benefits.

The wording of the trust deed matters enormously. A well-intentioned trust document with subtly wrong language can defeat the purpose entirely.

How the Trust Works in Practice

A Henson trust is typically created in a will, though it can also be set up as an inter vivos (living) trust. Here is how it typically operates:

1. The will directs that a portion of the estate (or the entire residue) is held in trust for the disabled beneficiary.
2. The trustee holds and invests the funds.
3. The trustee makes payments at their discretion — for example, to cover expenses not funded by ODSP, such as education, transportation, technology, recreation, travel, dental work, or enhanced housing.
4. On the beneficiary's death, the remaining trust assets pass to whoever is named as the remainder beneficiary (often other family members or a charitable cause).

The trust supplements ODSP rather than replacing it. The goal is to give the beneficiary a better quality of life than ODSP alone provides, without eliminating the program that provides baseline income and health coverage.

Choosing the Right Trustee

Because the trustee has absolute power over the trust funds, choosing the right person is one of the most important decisions in setting up a Henson trust. The trustee should be:

• Someone who knows and cares about the beneficiary. They need to understand what the beneficiary needs, even if the beneficiary cannot always communicate it directly.
• Financially literate and organized. Managing a trust involves keeping proper accounts, filing tax returns for the trust, and making sound investment decisions.
• Younger than or close in age to the beneficiary, or there must be a plan for what happens when the trustee can no longer act.
• Free of conflicts of interest. A trustee who is also a remainder beneficiary (meaning they inherit what is left when the disabled beneficiary dies) has a financial incentive not to spend on the beneficiary. Some families address this by separating the trustee and remainder beneficiary roles, or by naming a trust company.

A corporate trustee (a trust company) can be named either as a co-trustee alongside a family member or as a successor trustee for when the individual trustee can no longer act. This adds cost but provides continuity.

Common Pitfalls

Naming the disabled person as co-trustee. If the beneficiary has any control over distributions, it can undermine the absolute-discretion argument.

Failing to update the trust as ODSP rules change. ODSP regulations are set by the province and do change. A trust that complied perfectly with the rules at drafting may need to be reviewed if rules are amended.

Failing to name a successor trustee. What happens when the original trustee dies, becomes incapacitated, or simply wishes to step down? The trust must anticipate this.

Leaving too little. A Henson trust involves ongoing administrative costs. A trust funded with a very small amount may cost more to administer than it provides in benefit.

Leaving too much too early. In some cases, a large trust may itself affect how ODSP assesses the beneficiary's situation. Families with complex circumstances should get advice from a lawyer familiar with both estate law and ODSP regulations.

Other Estate Planning Considerations

A Henson trust is one part of a broader plan. Families caring for a person with a disability should also consider:

• A letter of wishes (not legally binding but extremely useful for a successor trustee who didn't know the beneficiary) describing the person's needs, preferences, routines, and important relationships.
• Life insurance as a practical way to fund the trust, especially when the estate itself may not be large.
• A registered disability savings plan (RDSP), which has its own rules and benefits separate from a Henson trust.
• Substitute decision-making — if the beneficiary lacks legal capacity, a guardian of property or attorney under a power of attorney may also be needed.

Frequently asked questions