The Henson Trust: Protecting an Inheritance Without Losing ODSP

What It Is

A Henson Trust is a type of trust used estate planning to protect the financial interests of a person with a disability while preserving their eligibility for ODSP. It is an absolute discretionary trust. In simple terms, this means the trustee (the person managing the trust) has full control over when and how the money in the trust is used, and the beneficiary (the person with the disability) has no legal right to demand payments from it. Because the beneficiary does not own or control the assets inside the trust, ODSP does not count them when assessing eligibility. Without this kind of arrangement, any inheritance a person on ODSP receives directly would be treated as income in the month it arrives and as an asset the following month, and if their total assets go above $40,000, their ODSP benefits could be affected.

There is no limit on how much can be held inside a Henson Trust. The trustee can use the funds to pay for things that ODSP does not cover adequately, including therapies, specialized equipment, recreation, travel, clothing, personal care, community programs, and education, allowing the trust to add to the person’s quality of life without displacing the government supports they receive.

How It Works with ODSP

Although the trust assets are exempt from ODSP’s asset test, payments from the trust to or for the beneficiary are treated as income in the month they are received. There are exemptions: up to $10,000 every 12 months from the trust for any purpose is exempt, along with funds used to purchase a home or vehicle, payments for approved disability related items and services, payments for education or training related to the disability, and first and last month’s rent to secure housing. If the trustee distributes more than $10,000 in the 12-month period for purposes outside these categories, the extra amount may be treated as income and may reduce the ODSP payment for that month. The trustee is required to report trust activity to ODSP each year, including the value of the trust and all payments in and out.

When to Set It Up and Choosing a Trustee

A Henson Trust needs to be in place while the parent is still alive. For testamentary trusts, this means writing the provisions into the will now, even if the child is still young or not yet on ODSP, because the trust provides protection against future eligibility issues and is easier to put in place with time to plan. The will should be reviewed and updated when there are changes in the family’s finances, the child’s needs, or the programs available.

The trustee is the person who looks after the money on behalf of the child, potentially for the rest of their life. The role includes managing and investing the trust assets, deciding when and how to distribute funds, following ODSP reporting rules, filing trust tax returns each year, and keeping records. Most families appoint a trusted family member, a close friend, or a professional trustee such as a trust company, and it is common to name more than one for oversight and continuity. In practice, families often expect the trustee to also coordinate supports and stay involved in the child’s life, and these broader expectations are worth discussing openly with the person being considered before they agree to take on the role.

What It Costs

The are costs associated with setting up the will or trust document – these vary depending on the complexity of the estate. There are ongoing costs for trust administration, investment management, and annual tax filings. If a professional trustee is used, their fees are additional. Working with a lawyer who has specific experience in disability estate planning helps make sure the trust achieves the protection it is intended to provide.

Practical Considerations

Life insurance policies, RRSPs, RRIFs, TFSAs, and pension plans all have separate beneficiary designations that operate outside of the will. If any of these name the child directly, the funds may go to them personally and bypass the Henson Trust, regardless of what the will says. Going through all beneficiary designations, not just the will, is part of setting up the trust properly.

If other family members such as grandparents, aunts, or uncles plan to leave money to a child with a disability, letting them know about the Henson Trust allows them to direct their gifts to the trust rather than to the child directly.