What is a Henson Trust? Special Needs Planning in Ontario

Estate planning is always personal. For families with loved ones who have disabilities, it requires even more care, including careful consideration of long-term support and government benefit eligibility. In Ontario, the Henson Trust has become the gold standard in special needs planning. Sometimes called an absolute discretionary trust, it allows parents, grandparents, or others to leave assets to a person with a disability without jeopardizing their entitlement to benefits under the Ontario Disability Support Program (ODSP).

ODSP Eligibility and the Role of a Henson Trust

ODSP provides income and benefits to Ontarians with disabilities who qualify based on their health and finances. Because the program is based on if a person has the means to support themselves or not, there is a limit on how much they can own. In most cases, a single recipient can have up to $40,000 in non-exempt assets, such as cash, savings, or investments. Some assets do not count toward this limit, including a home, a vehicle, a Registered Disability Savings Plan, or money held in a properly structured Henson Trust.

A Henson Trust offers a way to provide long-term financial support without affecting ODSP eligibility. When assets are placed in the trust and the trustee has full discretion over how and when funds are used, the money is not considered to belong to the person with a disability. Because the beneficiary cannot demand payments or control how the trust is managed, the assets are legally separate and are excluded from the ODSP asset test.

To meet the legal requirements, a Henson Trust must give the trustee absolute discretion over how the money is invested and distributed. The beneficiary cannot have a fixed right to income or a say in how the funds are used. If those rules aren’t followed, the trust may not qualify and the beneficiary could lose their ODSP benefits.

When set up properly, the trustee can use the funds to improve the beneficiary’s quality of life. This may include paying for therapies, education, assistive devices, travel, or additional caregiving support. That said, not all payments are treated the same. ODSP has specific rules about which types of expenses are exempt and how much can be spent each year without reducing benefits. For example, ODSP generally allows up to $10,000 per year for non-exempt items. Spending beyond that limit requires careful planning.

Setting Up a Henson Trust: Timing and Tax Considerations

A Henson Trust can be created in your Will or during your lifetime. Each approach offers different advantages, depending on your personal goals and financial situation.

Creating the trust through your Will is the most common route. This is known as a testamentary trust. It takes effect after your death and is usually funded by your estate or by proceeds from a life insurance policy. For many parents or grandparents, this is the simplest and most practical way to ensure long-term financial support for a loved one with a disability.

Alternatively, you may choose to set up the trust while you are still alive. This is called an inter vivos trust. It allows you to start supporting your loved one now, oversee how the trust is used, and potentially reduce probate fees later. However, this approach requires you to transfer assets during your lifetime, which can have tax and financial implications.

In either case, there are also potential tax benefits. If certain conditions are met, including that the beneficiary qualifies for the federal Disability Tax Credit, the trust may be eligible for graduated income tax rates. This can make a significant difference over time, especially if the trust is expected to hold income generating assets.

Because ODSP eligibility, tax planning, and estate goals must all be considered together, it’s important to work with an estate lawyer who understands the full picture. Proper coordination from the onset can help ensure your trust is not only legally sound, but also financially efficient.

Choosing the Right Trustee

Every Henson Trust must have a trustee. This person is legally responsible for managing the trust and deciding when and how money is used to support the beneficiary. The trustee plays a central role and their decisions can directly affect both the success of the trust and the beneficiary’s continued eligibility for ODSP.

Because the trustee has full control over the trust and its funds, the role comes with serious responsibility. The trustee must understand ODSP rules, keep accurate financial records, file annual trust tax returns, and always act in the best interests of the person with a disability.

Some people choose a sibling, close friend, or other trusted relative to take on this role. Others appoint a professional trustee, such as an estate lawyer. In some cases, a combination of a family member and a professional trustee working together to balance personal insight with legal and financial expertise may work best.

If you're still weighing your options, you may find it helpful to read my earlier blog on choosing an executor as many of the same principles apply when selecting a trustee.

Common Mistakes to Avoid

Some trusts fail to meet the legal criteria for a Henson Trust because they grant the beneficiary a right to income, fail to include a true discretionary clause or is drafted without clear instructions on how the trustee should consider the beneficiary’s needs.

It is also not uncommon to see families unintentionally disqualify their loved one from ODSP by naming them directly as a beneficiary of an RRSP, TFSA, or life insurance policy. A better approach is to designate the Henson Trust as the beneficiary to keep assets protected.

Planning with Confidence

Creating a Henson trust requires careful coordination between legal, tax, and ODSP considerations. The trust must be properly drafted, the trustee must understand their duties, and the overall estate plan should support the trust’s goals.

At E is for Estates, we help families plan with clarity and confidence. Whether you're just getting started or need help refining your existing plan, we can ensure your Henson trust is structured to protect your loved one’s future and their government benefits.

This article is intended for informational purposes only. For personalized advice tailored to your specific circumstance, please reach out to the E is for Estates team.

Erin L. Watson, B.A., JD

Lawyer & Notary Public

E is for Estates