Guide to Henson Trusts: Protecting Assets and Preserving Government Benefits for Clients

I. Introduction

A Henson Trust is a unique legal instrument designed to safeguard the assets of individuals with disabilities while ensuring their continued eligibility for means-tested government assistance programs. This report outlines the various aspects of Henson Trusts, including their purpose, structure, benefits, and limitations, to provide clients with a thorough understanding of how this estate planning tool can be used effectively to address their unique financial needs.

II. Background and Purpose of Henson Trusts

A. Origin

The Henson Trust originated from a 1989 Canadian court case, The Minister of Community and Social Services v. Henson. In this case, the court upheld the validity of a trust arrangement that allowed assets to be held for the benefit of a person with a disability without affecting their eligibility for government assistance.

B. Purpose

The primary purpose of a Henson Trust is to protect the assets of individuals with disabilities while preserving their access to means-tested government benefits, such as disability support and income assistance. By placing assets in a Henson Trust, the beneficiary's financial resources are not considered when determining their eligibility for government programs, ensuring they continue to receive essential benefits and support.

III. Structure of a Henson Trust

A. Key Features

1. Discretionary control: In a Henson Trust, the trustee(s) have full discretion over the distribution of income and/or capital from the trust to the beneficiary. The beneficiary has no direct control or entitlement to the trust assets, ensuring that the funds are not considered as part of their financial resources for means-tested government benefits.

2. Asset protection: Assets held within a Henson Trust are protected from creditors and potential misuse by the beneficiary or others.

3. Flexible structure: A Henson Trust can be tailored to accommodate the unique needs and circumstances of the beneficiary, including provisions for the appointment of successor trustees and the management of trust assets after the beneficiary's death.

B. Trustee Selection

Selecting a suitable trustee or trustees is a critical aspect of establishing a Henson Trust. The trustee(s) must be responsible, trustworthy, and capable of managing the trust assets in the best interests of the beneficiary. Potential trustees may include family members, friends, professional trustees, or trust companies.

IV. Benefits of a Henson Trust

A. Continuation of Government Benefits

The primary benefit of a Henson Trust is the preservation of the beneficiary's eligibility for means-tested government benefits and assistance programs. By placing assets in a trust, the beneficiary's financial resources are not considered when determining their eligibility for government programs, ensuring they continue to receive essential benefits and support.

B. Financial Security

A Henson Trust provides financial security for individuals with disabilities by protecting their assets and ensuring they have access to the necessary resources to meet their needs. The trustee(s) can distribute funds from the trust to cover expenses related to the beneficiary's disability, such as medical care, therapy, equipment, and home modifications.

C. Estate Planning

A Henson Trust can be an integral part of estate planning for families with a member who has a disability. The trust allows families to provide for their loved one's future financial needs while preserving their access to government benefits and support.

V. Limitations and Considerations

A. Legal and Administrative Costs

Establishing and administering a Henson Trust can be complex and may involve legal and administrative costs. Clients should carefully consider the potential costs when deciding whether a Henson Trust is appropriate for their situation.

B. Trustee Responsibilities

The trustee(s) of a Henson Trust have significant responsibilities, including managing the trust assets, making discretionary decisions about distributions, and ensuring compliance with tax and reporting requirements. Clients should carefully consider the responsibilities of the trustee(s) and ensure they are willing and able to fulfill their duties effectively.

C. Tax Implications

Henson Trusts may have tax implications for both the trust itself and the beneficiary. It is essential for clients to consult with a tax professional to understand the specific tax consequences associated with establishing and maintaining a Henson Trust.

D. Regular Review and Updates

The circumstances and needs of the beneficiary may change over time, necessitating regular review and updates to the Henson Trust. Clients should work with their legal and financial advisors to ensure that the trust remains effective and aligned with the beneficiary's evolving needs.

VI. Steps to Establish a Henson Trust

A. Consult with Legal and Financial Professionals

Clients considering a Henson Trust should consult with legal and financial professionals who have experience in disability and estate planning to ensure that the trust is structured appropriately and in compliance with applicable laws and regulations.

B. Draft the Trust Agreement

The trust agreement is the legal document that outlines the terms and conditions of the Henson Trust. A lawyer with expertise in trusts and estates should draft the trust agreement, ensuring that it reflects the client's intentions and the unique needs of the beneficiary.

C. Fund the Trust

Clients should transfer assets to the Henson Trust, either during their lifetime or through their will. The choice of assets and the timing of the transfer should be carefully considered in consultation with legal and financial advisors.

D. Appoint Trustee(s)

The client should appoint one or more trustees to manage the Henson Trust. The choice of trustee(s) is critical, as they will have significant responsibilities and must act in the best interests of the beneficiary.

VII. Conclusion

A Henson Trust is a valuable estate planning tool for individuals with disabilities and their families, providing asset protection and ensuring continued eligibility for means-tested government benefits. By understanding the structure, benefits, and limitations of Henson Trusts, clients can make informed decisions about whether this legal instrument is suited to their unique financial needs. Consulting with experienced legal and financial professionals is essential to ensure that a Henson Trust is established and administered effectively, providing financial security and peace of mind for the beneficiary and their family.