July 28, 2012
Looking after a disabled offspring
Reuel S. AmdurMore by this author...
What will become of my disabled offspring when I am no longer around to help? That is a common concern that parents, especially older parents, have. The burdens of being the parent of a person with a disability, physical or mental, are apt to continue throughout life.
If the son or daughter–or grandchild, for that matter–receives benefits from a province, the parent or grandparent may well be concerned that the monthly cheque is just too small and that something more is needed. That something extra can come through careful estate planning, using an instrument known as a Henson trust.
While this particular trust instrument began in Ontario as the result of a court challenge to the province’s efforts to terminate a woman’s assistance, the court’s decision has had a larger application and the Henson trust is now available in most provinces. Alberta specifically outlaws the provision, but their efforts to prevent usage of the instrument may be challengeable in the courts. The situation in Quebec may also not be totally clear. In both provinces, it would be wise to consult a trust lawyer about the prospects. Not all lawyers are aware of the name Henson, but lawyers who work in the field of trusts should in any case be familiar with how to create the appropriate trust instrument.
The Henson trust is what is known as an absolute discretionary trust, which means that the trustee has complete discretion as to the disposition of the funds. The beneficiary of the trust has no right to decide how the monies are to be used. As a result, the beneficiary does not own the funds in trust. The trustee decides on disposition of the funds on behalf of the person.
It is usual to include a residuary beneficiary, in case of the disabled person’s death. That beneficiary is often a charity. To make the residuary beneficiary the person acting as trustee may be unwise, as that choice would put the trustee in a conflict of interest. It would be to his financial advantage to minimize expenditures.
Let me give an example of how this form of trusteeship works. At one point in my career, I worked in Seaton House, a men’s shelter and residence in Toronto. One man living there needed slippers. He was the beneficiary of a Henson trust, so I called the law firm acting as trustee and made the request. They provided money for the slippers. They did not have to.
We may think that trusts are just for the very rich, but in fact they can also be used by people of ordinary means. There are many types of trusts that can be useful in reducing taxes, not just for making provision for survivors. It could be worth a trip to a lawyer’s office to discuss whether your individual circumstances might be improved by use of one kind of trust or another, even without a disabled family member. And trusts are not just for estate planning. There are many uses for trusts here and now, not just for the hereafter.
In setting up a trust, it is necessary to choose one or more trustees. For a Henson trust, you may want to choose a relative or close family friend as a trustee. The law firm that shelled out for the slippers took an occasional service charge from the account, and so you might want to avoid using a law firm. However, in setting up a trusteeship it is absolutely essential to use a lawyer or other expert in trusteeship. For example, some financial planners may be able to assist in the process. If the trusteeship is not drafted in precisely correct legal language, it may not hold water and may not offer the protection intended, leaving the disabled person without the needed protection and potentially depriving the person of the social assistance cheque.
The will setting up a Henson trust may transfer the entire estate into the trust or only a part. In the case of an RRSP or RRIF, it has to be all or nothing. You can’t leave just part of an RRSP or RRIF. When a person wants to avoid the all-or-nothing scenario, he or she may want to set up more than one RRSP or RRIF. The RRSP or RRIF can be rolled over into a Henson trust without the heavy taxation that would otherwise occur.