What is a Henson Trust?
A Henson Trust is type of trust that is part of Canadian law. It is also referred to as an absolute discretionary trust or discretionary trust. A Henson Trust is a very specific type of trust that can be used only in the planning for a person who has a disability. The goal is to protect the inheritance, as well as other assets, of the disabled person so that he or she can still collect any means-tested government entitlements or benefits. It became common in 1989, when the courts ruled that if a trust's assets were not vested in the beneficiary, they could not be used as a reason for the person to be disqualified from government benefit programs.
This type of trust is named after Leonard Henson, a man who was trying to protect his daughter Audrey, who had a development disability. If Mr. Henson had left his estate to his daughter, her total assets would be above the limits of the Family Benefits Allowance. Audrey was being taken care of by the Guelph Association for Community Living, which was a group home. Mr. Henson's will named the Guelph Association as the trustee and Audrey as the beneficiary of a testamentary trust. In the event that Audrey died, the remaining assets would go to the Guelph Association for Community Living.
The primary aspect that makes the Henson Trust unique is that the trustee has absolute discretion in deciding whether to use the trust assets to help the beneficiary. The trustee also has control over what amount of the assets will be given to the beneficiary, which is why the trustee is normally a parent or guardian. This means that the beneficiary does not actually have any control over the assets, which is why he or she cannot be denied benefits from government programs.
There are several other financial benefits to creating a Henson Trust. In certain situations, it can create a form of income tax relief because it will be taxed at a lower marginal rate. This is because the total assets of the beneficiary are not considered, only the assets within the trust.
It can protect assets from third parties as well. If the Henson Trust is set up as either a living trust or testamentary trust, it can be used to protect assets from matrimonial division in the event that the beneficiary gets a divorce. The assets protected under the trust are also immune from any claims made by creditors against the beneficiary.
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