Henson Trusts: Protecting a Disabled Beneficiary's Benefits

A Henson trust is a special kind of discretionary trust used to leave money to a person with a disability without disqualifying them from means-tested government benefits. In Ontario the benefit most often at stake is the Ontario Disability Support Program, or ODSP, which limits how much a recipient can own. A direct inheritance could push the beneficiary over those limits and cut off their support. A Henson trust solves this by holding the inheritance in a way that is not legally the beneficiary’s to control, so it does not count against them.

This guide is for parents, grandparents and other family members planning to provide for a loved one with a disability, and for anyone acting as a trustee or executor where such planning is in place. It is general information on a technical area; a Henson trust must be drafted by a lawyer who knows the disability benefit rules in the beneficiary’s province.

The problem a Henson trust solves

Provincial disability programs such as ODSP are means tested. A recipient can own only a limited value of assets and must report changes in their circumstances. An inheritance paid directly to the beneficiary, or left to them outright in a will, is their asset. If it exceeds the program’s limits, their benefits can be reduced or stopped until the money is spent down.

This produces a painful outcome that caring families stumble into: a parent leaves a modest sum to a disabled child intending to improve their life, and instead the child loses the stable monthly support, drug coverage and other assistance that the benefits provide, only to requalify once the inheritance is exhausted. The inheritance replaces the benefits rather than adding to them. A Henson trust is designed precisely to avoid this, so that the inheritance can top up quality of life while the benefits continue.

How a Henson trust works

The mechanism rests on one legal principle: the trustee has absolute discretion. The beneficiary cannot demand any payment and has no fixed entitlement to the capital or income. Because the beneficiary cannot compel the trustee to pay anything, provincial authorities generally do not treat the trust property as an asset the beneficiary owns.

That discretion is the heart of the structure. The trustee decides whether, when and how much to pay, always for the benefit of the disabled person, but entirely at the trustee’s judgement. Payments are typically used for things the benefits do not cover, improving the beneficiary’s comfort, independence and enjoyment of life without displacing their core support.

A Henson trust can be established two ways:

• Testamentary, created in your will and funded on your death. This is the most common approach for parents providing for a child.
• Inter vivos, created and funded during your lifetime, which allows the trust to operate and be tested while you are alive to oversee it.

Both rely on the same discretionary structure. Which is appropriate depends on the family’s circumstances and should be decided with a lawyer. For a broader explanation of how trusts function in Canada, see our overview of trusts explained and the distinction between testamentary and living trusts.

Choosing the trustee

Because the entire structure depends on discretion, the choice of trustee is the most consequential decision in a Henson trust. This person, or group of people, will exercise judgement over money meant to support a vulnerable family member, potentially for decades, and must understand how payments interact with benefit rules.

Good trustees for this role tend to share several qualities:

• Trustworthiness and judgement, since the beneficiary cannot hold them to a fixed entitlement.
• Longevity or continuity, because the trust may run for the beneficiary’s lifetime; naming a successor or a corporate trustee guards against the first trustee dying or becoming unable to act.
• Understanding of the beneficiary’s needs and willingness to stay engaged.
• Comfort with the benefit rules, so that payments help rather than inadvertently reduce support.

Many families name two trustees, often a sibling of the beneficiary together with a professional or corporate trustee, to combine personal knowledge with administrative reliability. Our guidance on how to choose an executor covers many of the same considerations.

Where the Henson trust fits with other tools

A Henson trust is rarely the whole plan. It usually sits alongside two other federal supports for people with disabilities, each doing a different job.

Tool	Main purpose	Key feature
Henson trust	Hold an inheritance outside the beneficiary’s assets	Trustee’s absolute discretion protects benefits
Registered Disability Savings Plan (RDSP)	Long-term tax-deferred savings with government grants and bonds	Generous matching for modest contributions
Disability Tax Credit (DTC)	Reduce income tax and unlock the RDSP	Must be approved before an RDSP can be opened

The RDSP is a powerful companion, because federal grants and bonds can substantially boost modest contributions, and RDSP assets and most withdrawals are generally treated favourably for ODSP. Coordinating a Henson trust with an RDSP, and ensuring the beneficiary is approved for the disability tax credit, often produces a far stronger result than any single tool alone. The right combination depends entirely on the beneficiary’s situation and should be designed with professional advice.

Practical considerations and limits

A Henson trust is powerful but not a cure for every issue, and a few practical points deserve attention.

First, how the trustee makes payments matters. Even though the trust assets are protected, certain payments made directly to the beneficiary can still be treated as income and affect benefits, while payments made for exempt purposes generally do not. The trustee needs to understand these distinctions before distributing, which is another reason the choice of trustee matters.

Second, provincial differences are real. Henson trusts are recognised in Ontario and most provinces, but the benefit rules, exemption limits and the way trusts interact with them vary. Planning must be grounded in the rules of the province where the beneficiary lives.

Third, there is tax to consider. Trusts are subject to their own tax rules, and certain trusts for disabled beneficiaries, such as a qualified disability trust, can access graduated tax rates in defined circumstances. These rules are technical and change, so the tax treatment should be confirmed with an accountant as part of setting up the trust.

Finally, a Henson trust should be reviewed periodically. Benefit programs change, the beneficiary’s needs evolve, and trustees age. A plan set and forgotten can drift out of step with the rules it depends on.

It is also worth being clear about what a Henson trust is not. It does not provide for the beneficiary during your lifetime unless it is set up as an inter vivos trust and funded now. A purely testamentary Henson trust does nothing until you die, so if a disabled family member needs support while you are alive, that must be arranged separately, for instance through an RDSP or direct assistance within the benefit rules. For this reason, families often combine lifetime support with a testamentary Henson trust that takes over on death, so there is no gap in provision.

Funding the trust and leaving guidance

Deciding how much to leave to a Henson trust is its own planning question. The answer depends on the beneficiary’s likely lifetime needs, the support the benefits already provide, what other resources exist, and how long the trust may need to last, potentially the beneficiary’s entire life. Because the trustee has discretion, you cannot dictate exactly how the money is spent, but you can leave a letter of wishes, a non-binding document that tells the trustee about the beneficiary’s preferences, routines and the kind of life you hope the trust will support. This guidance is invaluable to a trustee exercising discretion over decades, particularly once you are no longer there to advise them.

How Kevin Hayes Financial Services can help

Providing for a family member with a disability is among the most important and most technical areas of estate planning. Our estate planning work helps families bring the pieces together: how much to set aside, how a Henson trust coordinates with an RDSP and the disability tax credit, how the trust should be funded, and how it fits the rest of your estate. We work alongside your lawyer, who drafts the trust, and your accountant on the tax.

If you want to ensure a loved one with a disability is cared for without losing the benefits they rely on, book a private consultation and we will help you build a plan that lasts.