RDSP vs. Henson Trust in Ontario: Comparing Disability Planning

If you are planning for a relative with a disability, you may hear about two tools: a Registered Disability Savings Plan (RDSP) and a discretionary trust, often called a Henson trust. Families often ask which one is better, and the honest answer is that it depends on the person's benefits, the size of the gift and the family's goals.

This article explains how Ontario's disability support program (ODSP) treats trust money, since that is where a discretionary trust matters most. It does not set out the rules for RDSPs, which are separate and worth confirming with a lawyer or accountant before you decide.

Two tools with different rules

A discretionary trust is a legal arrangement in which a trustee holds money for a beneficiary and decides when and how much to pay. An RDSP is a different kind of savings arrangement with its own eligibility, contribution and withdrawal rules. They are not interchangeable, and some families use both.

Because the two work differently, it is not helpful to ask which is best in the abstract. A better approach is to ask how each one affects the person's ODSP, who controls the money, and what happens to any balance later.

How ODSP treats a Henson trust

Under ODSP rules, a true absolute discretionary (Henson) trust is not counted as an asset, no matter how much capital it holds.

A payment from that kind of trust is treated as a voluntary payment, because the trustee decides whether to pay and has no obligation to do so.

ODSP reviews each trust's terms individually, so a trust only gets this treatment if it is truly discretionary. Wording that gives the beneficiary a right to the money can change the result.

Trusts that are not fully discretionary

A recipient's beneficial interest in a non-discretionary trust whose capital comes from an inheritance or life insurance proceeds, and is available for maintenance, is exempt only up to a combined $100,000, together with the cash surrender value of life insurance.

If a recipient receives an inheritance or life insurance money directly, they may be given up to six months to put it into a trust, provided the trust is set up as soon as possible. Otherwise the money is treated as income in the month it is received.

Members of an ODSP benefit unit cannot put their own money, or money they are entitled to, into a private trust and have it exempted.

Payments out of a trust

Even when the trust itself is not counted, payments to the recipient may count as income. The treatment depends on what the money is used for.

The $10,000 limit is one to confirm against the current regulation with a lawyer, since ODSP rules can change.

What to do next

A trustee of a discretionary trust also has duties. In investing trust property, a trustee must use the care, skill, diligence and judgment of a prudent investor. The trust's own terms still govern, and the Trustee Act's investment powers do not authorize a trustee to act inconsistently with them.

• List the person's current benefits, including ODSP, and any other income.
• Identify where the money would come from, such as an inheritance, life insurance or the family's own savings.
• Ask a lawyer whether the trust wording will meet ODSP's test for a truly discretionary trust.
• Ask a lawyer or accountant how an RDSP would fit alongside the trust.
• Choose a trustee who can handle investing, record keeping and discretion over payments.

Frequently asked questions