A Henson trust, named after an Ontario court decision from the 1980s, is an estate planning tool by which property can be held in trust for a disabled beneficiary such that it is not an asset of the beneficiary, thereby preserving and maximizing the beneficiary’s entitlement to government means-tested social programs. It is frequently employed by parents of disabled children.
In S.A. v. Metro Vancouver Housing Corp, released 25 January 2019, the Supreme Court of Canada gave full consideration to Henson trusts. It confirmed the Henson trust as an important estate planning tool in Canada.
The appellant S.A. lived in subsidized housing operated by the respondent Metro Vancouver Housing Corporation, a non-profit corporation. The terms of her residential tenancy required her to demonstrate on an annual basis that she met the eligibility criteria, by completing and submitting an assistance application to MVHC. When S.A.’s father died she became the beneficiary of a Henson trust established by his will. MVHC requested that she disclose the balance of the trust, and some other details. She refused on the ground the trust was not an asset that could affect her eligibility for rental assistance. MVHC concluded it was unable to approve her application for assistance.
At trial and on appeal the British Columbia courts held (for different reasons) her trust was an asset, and she had to disclose the information requested. The SCC allowed S.A.’s appeal on the ground she had no entitlement to the trust property. (Two judges dissented in part but agreed with the majority’s analysis with respect to Henson trusts.) The word “asset” in the appellant’s assistance application was not broad enough to encompass S.A.’s interest in the trust. The value of the trust in question was not pertinent to the determination of her eligibility for assistance. Therefore MVHAC was not entitled to require the information as to value, or to refuse to consider her application when the information was not provided.
This SCC decision confirms the validity of the Henson trust as an estate planning tool, but makes clear validity depends on the following: (1) the trust must be purely discretionary so that the beneficiary only has a “mere hope” not an enforceable right to any distribution of income or capital from the trust; (2) the beneficiary must not have the right to unilaterally collapse the trust and call for the property; and (3) the trust must not contravene the contractual terms of the particular social program in question.
(1) Purely discretionary
The beneficiary must have no fixed entitlements to the trust property. Even if the terms of the trust require the trustees to consider whether to make payments to the beneficiary, the trustees must have ultimate and absolute discretion whether or not to make a payment. It is irrelevant whether the beneficiary is also a co-trustee of the trust provided the trust terms prevent the beneficiary as co-trustee from unilaterally ordering trust payments, and give her no more access to its assets than a beneficiary who is not also a trustee. A beneficiary of a Henson trust can therefore have input into decision-making for the trust, but cannot have control.
(2) No right to terminate
Regarding the right to unilaterally terminate the trust, the rule in Saunders v. Vautier which permits beneficiaries with absolute entitlement to all beneficial rights to terminate a trust and demand legal title over the trust property, must not be applicable. The rule will not apply where there is a “gift over”: in such cases the beneficiary’s interest in the trust is not absolute so the rule in Saunders v. Vautier does not apply. In S.A. v. Metro Vancouver Housing Corp the trust terms required any remainder of the trust funds to pass to a third party on S.A.’s death and prohibited her from appointing herself or her creditors as remainder beneficiaries.
(3) Subject to contractual terms
The beneficiary of the Henson trust must however comply with the specific terms of the target social benefits program in question, and all contractual terms as interpreted under the usual principles of contractual interpretation. This required interpretation of the word “assets” in the context of MVHC’s Rental Assistance Program. In that context the word means property or interest in property that a person can actually use to discharge debts and liabilities. As S.A. was unable to compel the trustees to make any distributions for her benefit, and could not collapse the trust for her benefit, her interest in the trust was not a asset within the meaning of that contract.