January 31, 2019
On January 25, 2019, the Supreme Court of Canada considered, for the first time, “Henson trusts” and the nature of a disabled beneficiary’s interest in them for the purposes of determining eligibility for social benefits programs. A Henson trust, frequently characterized as an “absolute discretionary trust”, is an estate-planning tool that people (often parents) use to benefit a disabled person (often their child) with the goal of protecting the disabled beneficiary’s assets while preserving and maximizing their access to program benefits. The Court’s decision in S.A. v. Metro Vancouver Housing Corp. confirms Henson trusts are a valid estate-planning tool, but whether a particular Henson trust is effective to meet the goal depends:
In S.A. v. Metro Vancouver Housing Corp., the not-for-profit Housing Corporation managed a subsidized rental housing complex under agreements with a B.C. government agency. However, the Housing Corporation offered additional rental assistance on a discretionary basis to tenants who satisfied eligibility criteria set out in the Corporation’s policy. The policy defined, among other things, “assets” for the purposes of applicant tenants’ eligibility to the additional assistance. S.A. had been residing in the housing complex since 1992, and had qualified for the rental assistance every year. In 2012, S.A. became the beneficiary of a Henson trust. Under its terms, the trustees had the absolute discretion to make payments from the income and capital for S.A.’s benefit; however, S.A. couldn’t compel the trustees to make any payments to her nor unilaterally collapse the trust. In 2015, the Housing Corporation requested that S.A. disclose the trust balance on the basis her interest in it was an “asset” that could affect her eligibility for the discretionary rental assistance. When S.A. refused, the Housing Corporation denied her assistance application on the grounds her interest in the trust was an “asset” and its value was required to determine her eligibility for assistance. But the majority of the Supreme Court of Canada judges disagreed:
It depends on the trust terms. The terms of the trust define the nature of the trust – and of the beneficiary’s interest in its assets. The Court described the two “essential features” of a Henson trust, characterizing the disabled beneficiary’s interest in them as “akin to a mere hope that some or all of [the trust’s] property will be distributed to [the beneficiary] at some point in the future”, with no actual enrichment or enforceable right to receive any of its income or capital:
It depends on the specific social benefits program terms. The Court issued an important caution: whether, and if so how, a Henson trust affects a disabled beneficiary’s eligibility for or entitlement to any particular benefits program must be determined on a case-by-case basis depending on the specific terms of the program that’s in issue.
In might depend on contract terms. In some cases, the terms of the “program” will be set out in a contract rather than in legislation or a regulation. Those cases will ultimately be a contractual dispute, and the principles of contractual interpretation will apply to ascertain whether, and how, the disabled beneficiary’s interest in a Henson trust affects their eligibility to the (contractual) benefits. And that was the situation in this case: the Court decided S.A. didn’t have a contractual entitlement to rental assistance from the Corporation even if she met the eligibility criteria, but the tenancy agreement imposed a contractual obligation on it to consider a complete application for rental assistance submitted by S.A. Whether S.A.’s interest in the trust was an “asset” the Corporation could consider depended on the interpretation of the word “assets” as used in the assistance application. The Court decided it wasn’t broad enough to encompass S.A.’s interest in the trust, so that interest wasn’t an “asset” that could disqualify her from the Corporation’s consideration for rental assistance.
Please contact your McInnes Cooper lawyer or any member of the Estates & Trusts Team @ McInnes Cooper to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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