What is a Henson Trust?

A Henson Trust is an absolute discretionary trust designed to hold assets for the benefit of a person with a disability without disqualifying them from provincial income support programs like ODSP (Ontario Disability Support Program), AISH (Assured Income for Severely Handicapped in Alberta), or PWD (Persons with Disabilities in BC). Its defining feature is that all distributions are fully at the trustee''s absolute discretion — the beneficiary has no legal right to demand any payment. Because the beneficiary cannot demand funds, the trust assets are not counted as the beneficiary''s assets for the purposes of provincial disability program means tests. Named after the Ontario case Re Leonard Foundation, the Henson Trust principle was confirmed in the 1989 Ontario Court of Appeal case Henson v. Ontario (Director, ODSP predecessor) and is now recognized across most Canadian provinces. It is the cornerstone of estate planning for families with a disabled dependant.

Why does a Henson Trust protect disability benefit eligibility?

Provincial disability programs (ODSP, AISH, PWD, etc.) have strict asset limits. In Ontario, ODSP limits liquid assets to $40,000 per individual. If a disabled beneficiary inherits money outright or holds it in a bare trust where they can demand payment, the assets count toward the limit and recipients may lose benefits — sometimes for years. The Henson Trust eliminates this problem because: the beneficiary has NO enforceable right to any payment from the trust; the trustee has complete discretion over if, when, and how much to distribute; because the beneficiary has no "property interest" in the trust assets, the trust assets are not attributed to them as their own assets by the government program. Provincial governments and courts have consistently upheld that ODSP and equivalent programs must respect the absolute discretionary structure — trust assets genuinely outside the beneficiary''s control are outside the program means test. Note: distributions from the trust may be counted as income when received — but assets sitting in the trust are not counted as accumulated assets.

Who should be named as trustee of a Henson Trust?

Trustee selection is critical because the trustee has complete, unreviewable discretion over every distribution. The trustee must: be someone the beneficiary trusts absolutely (and who trusts the beneficiary); be financially competent to manage the trust assets and make distribution decisions; ideally be close in age to the beneficiary (a sibling, not an aging parent who may predecease the beneficiary); understand the beneficiary''s needs, programs, and long-term care requirements; be willing to manage for potentially decades. Options: (1) A trusted sibling or family member — the most common choice; no compensation is legally required but should be addressed. (2) A trust company or professional trustee — impersonal but reliable; annual fees of 0.5–1.5% of trust assets. (3) Co-trustees — e.g., a family member + a professional trustee for checks and balances. Always name at least one alternate trustee in case the primary cannot act. Avoid naming the disabled person''s caregiver as sole trustee.

How is a Henson Trust structured in a will?

A Henson Trust is typically created testamentary — it springs into existence upon the death of the settlor (the will-maker). Key elements the trust document must contain: (1) Absolute discretion clause — language confirming the trustee has "absolute and unfettered discretion" to make any payment or no payment, and that the beneficiary has no right to demand a payment. Courts have held that vague discretion language is not enough — it must be absolute. (2) Permitted uses of fund — the trust document may describe broadly what the trustee may use funds for (housing, care, enrichment, medical) to guide (but not legally compel) the trustee. (3) Distribution on termination — what happens to trust assets when the disabled beneficiary dies (typically flows to other family members or charity). (4) Trust in a will — the Henson Trust is typically one clause within a will directing that a stated portion (or the residue) of the estate is to be held on Henson Trust terms. Cost: a will containing a proper Henson Trust typically costs $1,500–$3,000 from an experienced estates lawyer — significantly more than a simple will because of the legal precision required.

When should I use a Henson Trust vs. an RDSP?

A Henson Trust and an RDSP (Registered Disability Savings Plan) serve different purposes and are best used together, not as alternatives. RDSP: government contributions (CDSG up to $3,500/year; CDSB up to $1,000/year); maximum personal lifetime contributions = $200,000; designed for long-term retirement savings; 10-year holdback prevents early withdrawal; assets inside an RDSP are explicitly exempt from ODSP asset limits. Henson Trust: holds inheritances and gifts of unlimited size; can be used for immediate needs (housing, care, enrichment, travel, medical costs); provides flexible access to funds at trustee''s discretion; can hold a wide range of investments; does not attract government contributions; no 10-year holdback; no lifetime contribution limit. Strategy: use the RDSP for government grants and long-term security; use the Henson Trust for larger inheritances, ongoing support beyond what the RDSP provides, and immediate lifetime needs. A parent''s estate plan should typically fund both.

What are the tax implications of a Henson Trust?

A testamentary Henson Trust (created by a will) has favourable tax treatment: (1) Testamentary trusts generally pay income tax at graduated federal rates (0–33%), not at the top marginal rate like inter vivos trusts. This means income earned inside the trust is taxed progressively — often at low rates if income is modest. (2) Distributions to the beneficiary (income distributions) may be subject to income attribution back to the trust or may be included in the beneficiary''s income depending on the nature of the distribution and trust terms. (3) Capital gains inside the trust are taxed at 50% inclusion (same as individuals). (4) The trust files its own T3 annual income tax return. (5) The trust may be eligible for a disability tax credit if the disabled beneficiary qualifies. Important: the tax treatment of testamentary trusts has changed since 2016. Only "graduated rate estates" (for the first 36 months after death) and "qualified disability trusts" (QDT) retain graduated rates beyond 36 months. A Henson Trust can qualify as a QDT if the beneficiary is electively designated — consult a tax lawyer to ensure the trust is structured to qualify.

Does a Henson Trust work outside Ontario?

The Henson Trust principle is recognized across most Canadian provinces, though provincial disability program rules differ: Ontario (ODSP): fully recognized — Henson Trust assets are excluded from the $40,000 asset limit. Alberta (AISH): recognized — AISH treats absolute discretionary trusts as excluded assets; confirmed in Phillips v. Alberta, 2011. BC (PWD): recognized — BC repealed the old asset test that had limited recognition. Saskatchewan, Manitoba, New Brunswick: generally recognized through similar case law and policy. Quebec: civil law trust structures differ but a discretionary trust achieves similar protection under Quebec law. Nova Scotia, PEI, Newfoundland: recognized with some provincial nuances. Important: consult with an estate planning lawyer in your specific province before establishing a Henson Trust — provincial disability program rules can change and the trust must be drafted in compliance with current provincial policy.

Henson Trust Canada: Protecting a Disabled Dependant Without Losing Benefits

A Henson Trust may be the single most important financial planning tool available to a family with a disabled dependant — it allows you to leave them substantial assets without inadvertently ending their access to critical government support programs.

Henson Trust vs. outright inheritance vs. RDSP

Feature	Outright inheritance	RDSP	Henson Trust
Government contributions	None	Yes (CDSG + CDSB)	None
Counts as ODSP asset	Yes — over limit = loss of benefits	No (exempt)	No (absolute discretion)
Immediate spending flexibility	Yes	No (10-year holdback)	Yes (trustee discretion)
Inheritance amount limit	Unlimited	$200K lifetime	Unlimited
Beneficiary can demand funds	Yes	No	No
Annual income earned taxed at	Individual rates	Trust (RDSP is tax-sheltered)	Graduated trust rates (if QDT)
Death of beneficiary — remainder	Estate of beneficiary	Estate of beneficiary	Per trust terms (e.g., siblings, charity)

Henson Trust: essential drafting checklist

Absolute and unfettered discretion language (no enforceable right to payment)
Co-trustee or successor trustee provisions
Broad purposes clause (housing, care, enrichment, medical, recreation)
Qualified Disability Trust (QDT) election mechanism for graduated tax rates
Gift/inheritance receipt provisions (allow trust to receive assets from other sources)
No-contest clause (protecting trustee from beneficiary family litigation)
Trust termination provisions (death of beneficiary, change in disability status)
Compensation for trustee (nil, or stated percentage)
Interaction with RDSP (trustee may contribute to beneficiary’s RDSP from trust assets)

Provincial absolute discretionary trust recognition (summary)

Province	Program	Henson Trust recognized	Notes
Ontario	ODSP	Yes	Leading jurisdiction — Henson case origin
Alberta	AISH	Yes	Phillips 2011
BC	PWD	Yes	Asset test rules updated 2020+
Manitoba	EIA Disability	Yes	Policy recognition
Saskatchewan	SAID	Yes	Saskatchewan Assured Income for Disability
New Brunswick	NB Disability	Generally yes	Confirm with provincial office
Quebec	Aide sociale	Structure differs	Civil law discretionary trust used

Estate planning sequence for families with a disabled dependant

Open an RDSP for the beneficiary immediately (DTC required) — capture government grants
Name the RDSP separately in your will for a rollover from your RRSP/RRIF (if qualified)
Draft a will containing a properly structured Henson Trust for any residue
Name the Henson Trust (via trustee) as contingent beneficiary on life insurance — not the disabled person directly
Designate the trust in group benefit and pension beneficiary forms
Review the trust every 5 years or whenever provincial program rules change

How to set up a Henson Trust in Canada

A Henson Trust is created in your will (it cannot be set up during your lifetime as a living trust — it must be testamentary). The key drafting elements:

Absolute discretion clause — the trustee must have “absolute and unfettered discretion” over distributions. This is the defining feature that keeps assets off the government’’s asset test.
Trustee appointment — choose a trusted family member or professional trustee. The disabled beneficiary cannot be the sole trustee.
Successor trustee — name a backup trustee in case the primary trustee dies or cannot serve.
Trust purpose — specify the trust is for the disabled person’’s “comfort, care, maintenance, and well-being” (supplementing, not replacing, government benefits).
Residual beneficiary — name who receives the remaining trust assets when the disabled person dies.

Work with an estate lawyer experienced in special needs planning — the precise wording matters and varies by province.

Henson Trust and provincial disability programs

Henson Trusts interact with provincial disability income programs. Rules vary:

Province	Key rules
Ontario	ODSP explicitly recognizes Henson Trusts — assets in trust are exempt if trustee has absolute discretion
BC	PWD program recognizes fully discretionary trusts; some limits apply to annual distributions
Alberta	AISH has a $100,000 asset limit; Henson Trust assets are generally exempt
Quebec	Provincial rules differ — consult a Quebec notary

Always confirm current rules with the provincial disability program before finalizing the trust structure, as program rules change.

Frequently asked questions

Can a Henson Trust be set up for an adult child? Yes. Henson Trusts are most commonly created for adult children with disabilities. The beneficiary does not need to be a minor — the trust is specifically designed for adults receiving provincial disability income support.

How much can I put in a Henson Trust? There is no formal limit. Most families fund Henson Trusts through a combination of: life insurance proceeds (often the primary funding source), RRSP/RRIF assets directed to the trust, and the residue of the estate. The RDSP lifetime contribution limit ($200,000) is separate — a Henson Trust and RDSP can both be used together.

Does a Henson Trust pay income tax? Yes. A testamentary trust (created in a will) is taxed at graduated individual rates — the same marginal rates as an individual. Distributions to the beneficiary from capital are tax-free in the beneficiary’’s hands; distributions from trust income are taxable in the trust or the beneficiary’’s hands depending on how the trust is structured.