ODSP-Safe Estate Planning for a Child with a Disability in Ontario

If your child receives Ontario Disability Support Program (ODSP) benefits, a straightforward inheritance can cost them their eligibility. Under ODSP rules (as of writing — verify current amounts with the Ministry of Children, Community and Social Services), a recipient who receives or holds assets above a certain threshold can lose their monthly benefits until those assets are spent down. For a parent who has spent years building an estate to support a disabled child, this outcome is devastating.

The good news: Ontario law provides specific tools to leave money for a child with a disability without triggering an ODSP asset review. This article explains how.

How ODSP Asset Rules Work (in Plain Language)

ODSP recipients are subject to an asset limit. If a recipient's assets exceed that limit, their benefits are suspended until the assets fall back below the threshold. A large inheritance — even a well-meaning one — can push a recipient over the limit, cutting off the monthly income and health benefits they rely on.

The asset rules apply to assets the ODSP recipient "owns or controls." If you simply leave money directly to your child in your will, they own it, and ODSP will count it.

The solution is to leave the inheritance in a structure that the ODSP recipient does not legally own or control.

The Henson Trust: Ontario's Primary Tool

A Henson trust (named after a court case that validated the structure) is an "absolute discretionary trust." Here is how it works:

• You set up the trust in your will (or as a standalone trust deed while you are alive).
• You appoint a trustee — typically a trusted family member, friend, or professional trust company — with complete discretion over whether to pay funds to or for the benefit of your child.
• Because the trustee has absolute discretion (they are never required to pay the beneficiary anything), the child cannot demand the funds. ODSP therefore does not count the trust assets as the child's asset.
• The trustee pays expenses on the child's behalf — housing top-ups, therapies, equipment, travel, experiences — that ODSP does not cover.

Key drafting requirements

• The discretion must be absolute — no provision can entitle the beneficiary to receive funds as of right. Even a small mandatory payment clause can undermine the structure.
• The trust should clearly state the purpose (supplementing, not replacing, government benefits).
• Trustee selection is critical: the trustee will manage these funds potentially for decades and must understand the beneficiary's needs.

What Happens to the Trust When Your Child Dies?

The will must specify where any remaining trust funds go after your child's death. Common choices:

• Equally among your other children
• A charity
• Back into your estate (though this can cause tax complications)

ODSP does not require the government to be repaid from a Henson trust on the beneficiary's death — unlike some U.S. "special needs trust" rules. This is a significant advantage.

The Registered Disability Savings Plan (RDSP)

An RDSP is a federal savings account for Canadians with disabilities who qualify for the Disability Tax Credit (DTC). Key features:

• Government grants and bonds top up contributions, potentially significantly (as of writing — verify current amounts with the CRA).
• RDSP assets are exempt from ODSP asset limits.
• Your will can name the RDSP as a beneficiary of your RRSP or RRIF on a tax-deferred "rollover" basis, if your child qualifies — this is sometimes called an "eligible designated beneficiary" rollover.

An RDSP is not a substitute for a Henson trust — it has contribution limits and its own rules — but it should be considered as part of the broader plan.

Designating the Henson Trust as Beneficiary of Life Insurance and Registered Plans

You can name the Henson trust (once it is established) as the beneficiary of a life insurance policy. For registered accounts (RRSP/RRIF), the "rollover to RDSP" option may be more tax-efficient — but only if your child qualifies for the DTC and has RDSP room available.

Work through these designations carefully with a lawyer and a financial advisor who understands both ODSP and federal tax rules.

Choosing the Right Trustee

The trustee of a Henson trust carries enormous responsibility. Consider:

• Individual trustees (a sibling, trusted friend): personally invested in the beneficiary's wellbeing, but may predecease the beneficiary, may not have financial expertise, and may be subject to family pressure.
• Professional trustees / trust companies: experienced, impartial, and continuous (they won't die or become incapacitated), but charge fees.
• Successor trustees: name at least one backup in case the primary trustee cannot serve.

The trust should also include a mechanism for replacing a trustee who is not serving the beneficiary's best interests.

Other ODSP-Exempt Receipts

Certain things are not counted as assets for ODSP purposes (as of writing — verify current rules with the Ministry):

• An inheritance held in a proper Henson trust
• RDSP assets
• A principal residence
• Certain life insurance proceeds (depending on structure)

Always verify current ODSP exemption rules before finalizing any plan, because program rules change.

What If You Do Nothing?

If you have a child on ODSP and you die without addressing this in your will, the inheritance passes to your child outright. ODSP will count those funds as assets. Your child's benefits may be suspended. They may spend the inheritance on living expenses that ODSP would otherwise have covered — the exact opposite of your intent.

The stakes are high enough that this planning should be treated as urgent, not optional.

Frequently asked questions