- Garry J. Wise, Toronto
Visit our Toronto Law Office website: www.wiselaw.net
Monday, September 30, 2019
Friday, September 27, 2019
Henson Trusts: The Supreme Court of Canada Saves an Important Estate Planning Tool for Canadians with Disabilities
BY PAUL B. ADAM, ASSOCIATE LAWYER
Henson trusts for persons with disabilities have long been an important way for Canadian families to provide for children or adults with physical challenges.
Henson trusts for persons with disabilities have long been an important way for Canadian families to provide for children or adults with physical challenges.
A 2017 decision from British Columbia
appeared to seriously limited the usefulness of these trust accounts. In
January 2019, to the relief of many, the Supreme Court of Canada reversed that ruling in S.A. v. Metro Vancouver Housing Corp.
The importance of the accounts, commonly known as “Henson Trusts”
has been that they allow money to be set aside for a disabled person, with
money from the trust to be paid to that person every year, without the trust
being considered part of the disabled person’s ‘assets’ for the purpose of some
government programs that are means-tested.
These programs include the Ontario Disability Support Program
(ODSP), Guaranteed Income Supplement, and access to housing that is geared to
income.
Under a Henson trust, the disabled beneficiary has no discretion
over the trust funds and is not able to request that the trust be collapsed and
paid out in a lump sum or the terms of the trust amended.
The way the beneficiary is prevented from gaining that discretion
over the trust funds is by naming a second beneficiary who receives a portion
of the funds in trust after a certain period of time, thereby splitting the
legal interests in the trust between two people. The Trustee retains complete
and absolute discretion over the trust fund, and can exercise that discretion
to make payments from the trust to the beneficiary each year in an appropriate
amount, or not at all.
Because the beneficiary never has discretion over his or her own
trust funds, it is impossible from a legal standpoint to attach a value to the
trust for the purpose of reporting his or her assets, and the trust remains a
sort of legal ‘black box.’
These ‘Henson Trusts’ have for years allowed people with
disabilities to receive vital additional money each year. For the purpose of
means tested programs, these funds are typically excluded, rather than being
regarded as part of the recipient’s income.
There was a considerable ripple of dread that spread through the
estate, trust and disability communities in 2017 when the Court of Appeal of
British Columbia released a decision that required a person with a disability
to disclose a ‘Henson Trust’ on an application for subsidized housing.
The BC appeal judgment found that the Henson Trust that designated the appellant, “S.A.” as a beneficiary was really an asset that she owned. Having to disclose that asset could disqualify her and other people with disabilities in a similar position from qualifying for supports. The Court of Appeal found that the interest the beneficiary had in the trust, despite the trust being discretionary, was clearly worth something as an asset:
The BC appeal judgment found that the Henson Trust that designated the appellant, “S.A.” as a beneficiary was really an asset that she owned. Having to disclose that asset could disqualify her and other people with disabilities in a similar position from qualifying for supports. The Court of Appeal found that the interest the beneficiary had in the trust, despite the trust being discretionary, was clearly worth something as an asset:
[54] While S.A. may not have a vested interest in the Trust, she clearly has a beneficial interest. If she wishes to apply for a rental subsidy she must disclose the amount in the Trust. […]
[56] I agree with the chambers judge’s analysis that the Trust is an asset of S.A. and that [Metro Vancouver Housing Corporation] is entitled, pursuant to the provisions of the Assistance Application, to the further information it requested concerning the Trust to assist it in determining whether to provide rental assistance.”
The Supreme Court of Canada revisited the nature and character of
the classical Henson Trust:
[35] The Trust at issue in this case has the essential
features of a Henson trust. The terms of the Trust do not
confer any fixed entitlements on S.A., and instead provide the Trustees with
ultimate discretion over any distributions that might be made out of the
Trust’s income or capital for S.A.’s care, maintenance, education or benefit
(art. 1(a)(iv)(A)). Importantly, they specifically provide that the
Trustees, in exercising their discretion, can decide not to make any distributions
to S.A. at all. […]
[36] It is thus clear that, although the Trustees have an
obligation to consider whether to make distributions out of
the Trust for S.A.’s care and maintenance, they are not actually required to
distribute any of the Trust’s assets either to her or for her benefit. […] S.A.
therefore does not have an enforceable right to receive anything unless
and until the Trustees decide to exercise their discretion in her
favour.
[38] Another key aspect of the Trust is that it is structured so that it
cannot be unilaterally collapsed by S.A. under the rule in Saunders v.
Vautier, according to which a beneficiary of a trust (or multiple
beneficiaries acting jointly) can terminate the trust and demand that the
trustee convey legal title over the corpus of the trust to him or
her — but only if the beneficiary has capacity and is absolutely
entitled to all the rights of beneficial ownership in the trust property […].
Analyzing this rule in the context of the present appeal, it is important to
observe that under the terms of the Trust, any remainder of the trust fund must
pass to some third party upon S.A.’s death: art. 1(a)(iv)(C) and art.
1(a)(iv)(D) specifically prohibit her from appointing either herself or her
creditors as remainder beneficiaries. The effect of this “gift over” is that
S.A.’s interest in the Trust is not absolute, and therefore prevents her from
terminating the Trust on her own in accordance with the rule in Saunders
v. Vautier […].
The Court then went on to consider how this characterization
applies to S.A. and her entitlement to be considered for housing:
“[54] With respect, I am of the view that the Chambers Judge’s
understanding of S.A.’s interest in the Trust represents an error of law. As
explained above, S.A […] has no fixed entitlement to the assets settled
therein, and is precluded from unilaterally collapsing the Trust for her
benefit (see para. 39 of these reasons). Given that the Trust only provides her
with what is essentially akin to a mere hope of receiving some or all of the
property at some point in the future, the Chambers Judge’s conclusion that
S.A.’s interest in the Trust is “more than a mere possibility” — such
that it falls within the meaning of the word “assets” as used in the Assistance
Application — cannot stand.
The Supreme Court has affirmed, thus, what the essential
characteristics of a Henson Trust are, and has ruled that the trust does not
have the character of something that is owned by the beneficiary. Instead, the
trust has a status that is somewhat akin to a generous family member that can,
and often does, but is not legally obligated, to provide for the beneficiary.
We should save a word or two for the partial dissent of Justices
Rowe and Brown.
Whether or not having a Henson Trust in one’s name is an “asset”
or just a possible source of support, it is something than can put some
disabled persons materially on a different footing than others. One can very
much make the argument that whatever the status of a Henson Trust, government
agencies still need to make tough decisions about how to ration the chronically
short amounts of money that are allocated every year to assisting Canadians
with disabilities.
Rowe J. addresses this point:
[88] This highlights a further problem
with granting declaratory relief in the circumstances. This is that contrary to
the suggestion of the majority, a declaration as to the meaning of the word
“asset” does not settle the “live controversy” between the parties (majority
reasons, at para. 61). While the parties have disagreed about the meaning of
the word “asset” throughout these proceedings, resolution of this point does
not settle the matter of S.A.’s entitlement to rental assistance, the reason
for which declaratory relief is sought by S.A. and seemingly granted by the
majority. This is because it is not for the courts to decide how MVHC utilizes
its resources. A declaration as to the meaning of the word “asset” only settles
the live issue between the parties if one also accepts that, in addition to
having a contractual obligation to consider completed applications, MVHC is
bound to a particular framework for the determination of who is to receive
rental assistance. For the reasons I have set out above, I differ from the
majority on the contractual obligation issue.
It will remain to be seen whether further attention is paid to
this point raised in dissent at some time in the future. But this may be an
important point to consider for lawyers, people with disabilities, and estate
clients. As more and more Canadians age with chronic disabilities, shortfalls
of funding for programs will probably make eligibility decisions tougher, not
easier.
The time may come again that a government program or agency has to
take a hard look at whether it is able to provide for clients with this extra
income, and without.
When that time comes, will Canada’s top court protect the Henson
Trust again?
- Paul B. Adam, Toronto
Visit our Toronto Law Office website: www.wiselaw.net
Legally Adulting in Brampton
We had another successful evening at WISE LAW'S Legally Adulting community seminar, last night at the Nirvana Wellness Centre in Brampton.
Thank you to everyone who attended and joined us for a night of discussion with our lawyers, Simran Bakshi and Paul Adam. Thank you, as well, for bringing so many excellent questions with you.
We hope you found this seminar informative and worthwhile (and possibly even entertaining).
Join us for our next Legally Adulting Community Seminar on Monday, October 28th at Creeds Coffee Bar. 390 Dupont Street. Toronto, Ontario.
Here area few photos from last evening:
We hope to see you at Creed's in October!
Thank you to everyone who attended and joined us for a night of discussion with our lawyers, Simran Bakshi and Paul Adam. Thank you, as well, for bringing so many excellent questions with you.
We hope you found this seminar informative and worthwhile (and possibly even entertaining).
Join us for our next Legally Adulting Community Seminar on Monday, October 28th at Creeds Coffee Bar. 390 Dupont Street. Toronto, Ontario.
Here area few photos from last evening:
We hope to see you at Creed's in October!
- Garry J. Wise, Toronto
Visit our Toronto Law Office website: www.wiselaw.net
Monday, September 23, 2019
140Law: Legal Headlines for the week of September 23, 2019
- Garry J. Wise, Toronto
Visit our Toronto Law Office website: www.wiselaw.net
Monday, September 16, 2019
140Law: Top 10 Legal Headlines for the Week of September 16, 2019
140Law: Here are our Top 10 legal headlines for the week of September 16, 2019.
- Garry J. Wise, Toronto
Visit our Toronto Law Office website: www.wiselaw.net
140Law: Legal Headlines for the week of September 16, 2019
- Garry J. Wise, Toronto
Visit our Toronto Law Office website: www.wiselaw.net
Monday, September 09, 2019
140Law: Legal Headlines for the week of September 9, 2019
- Garry J. Wise, Toronto
Visit our Toronto Law Office website: www.wiselaw.net
Tuesday, September 03, 2019
140Law: Legal Headlines for the week of September 3, 2019
- Garry J. Wise, Toronto
Visit our Toronto Law Office website: www.wiselaw.net
Subscribe to:
Posts (Atom)
