Updating Your Will to Protect a Disabled Beneficiary: Why a Henson Trust is Essential

Planning for the future is crucial, especially if you have loved ones who rely on government support like the Ontario Disability Support Program (ODSP). Many people don’t realize that receiving an inheritance can disqualify a person from ODSP, leaving them without the financial assistance they depend on. This is why it’s essential to update your Will and include a Henson Trust (sometimes called an absolute discretionary trust) if you have beneficiaries who are disabled.

How ODSP Eligibility Works

To qualify for ODSP, a person must meet strict financial requirements. A single individual can have a maximum of $40,000 in assets (excluding exempt assets like a home or vehicle), while the limit for income support eligibility is just $5,000 in assets. Any inheritance received directly is considered an asset and could push the beneficiary over the limit, resulting in a loss of ODSP benefits.

However, a person on ODSP may receive up to $10,000 in gifts or voluntary payments within any 12-month period and still remain eligible for benefits. Additionally, an ODSP beneficiary can establish a trust for an amount not exceeding $100,000, which includes the cash surrender value of any life insurance policies owned by the beneficiary. Although ODSP allows recipients to place up to $100,000 in a trust, this doesn’t protect larger inheritances. This is where a Henson Trust comes in.

What is a Henson Trust and Why is It Important?

A Henson Trust is an Absolute Discretionary Trust designed to protect an inheritance while ensuring that the beneficiary remains eligible for ODSP. Unlike a standard trust, the assets in a Henson Trust are not considered the property of the beneficiary because they are under the complete control of a trustee. This means:

• The beneficiary can still receive ODSP benefits.
• The inheritance remains available for necessary expenses like medical care, housing, and quality of life improvements.
• The funds are protected from government clawbacks or mismanagement.

Without a Henson Trust, a disabled beneficiary could be forced to spend their inheritance quickly just to requalify for ODSP—defeating the purpose of long-term financial planning.

What If There’s No Henson Trust?

If a Will does not include a Henson Trust and a beneficiary receives more than $100,000, there are still options, but they are limited:

• Purchasing exempt assets – The beneficiary can use the money to buy a principal residence, an exempt vehicle, or necessary disability equipment, as these are not counted toward ODSP limits.
• Contributing to a Registered Disability Savings Plan (RDSP) – A lifetime contribution of up to $200,000 can be placed in an RDSP, helping secure long-term financial stability.
• Contributing to a Registered Education Savings Plan (RESP) – Funds can be allocated toward an RESP for the beneficiary’s children.
• Placing up to $100,000 in a trust – Though this is an option, it lacks the full protection and flexibility of a Henson Trust.
• Approved disability-related items, services, education, or training expenses that are not reimbursable – These expenses can be covered without affecting ODSP eligibility.
• First and last month’s rent necessary to secure accommodation – These payments can be made without impacting ODSP benefits.

Why You Should Update Your Will

If your Will does not currently include a Henson Trust, your disabled beneficiary may face serious financial consequences. They could lose essential income, medical coverage, and other benefits that ODSP provides. By working with an estate planning lawyer, you can ensure that their inheritance is structured in a way that maximizes their financial security without affecting their government support.

Final Thoughts

Planning for the future of a loved one with a disability can be complex, but it's essential to ensure their financial security without compromising their access to ODSP benefits. The assistance of an estate planning lawyer is essential to structure your Will in a way that protects the interests of your beneficiary while respecting legal requirements. At Sicotte Guilbault, we're here to support you every step of the way and answer all your questions. Don't hesitate to contact us for advice tailored to your situation.