Absolute discretionary TRUST also known as a

“Henson” trust or a Special Needs Trust

 

In December, 1987 the Divisional Court in Ontario ruled that a trust of more than $82,000 created by the will of Leonard Henson for the benefit of his daughter Audrey Henson was not an asset owned by Miss Henson, that would prevent her from receiving benefits as a person with a disability under what was then the Ontario Family Benefits Act. At that time, no individual was entitled to receive benefits if they had liquid assets in excess of $3,000. That limit has since been raised to $40,000. Liquid assets include cash and anything that can be converted into cash. The technical name for the kind of trust Mr. Henson established for his daughter Audrey is an “absolute discretionary trust”. The Ontario Court of Appeal upheld the Divisional Court’s decision in September 1989.

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The trust agreement in Mr. Henson’s will contained several terms that helped convince the Court that Audrey’s trust did not actually belong to her, and therefore she should not have been disqualified from receiving government benefits.

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The trustees were given the “absolute and unfettered discretion” to use the income and the capital of the trust for Audrey’s benefit as they “consider advisable from time to time”. Hence the name “absolute discretionary trust”. It means just what it says: the trustees can use as much or as little of the money for the benefit of the individual as they see fit, whenever they choose to do so. It does not mean they have the discretion to use the money for the benefit of anyone else, unless the language of the will actually gives them the authority to do so.

Any income [interest] earned by the trust but not used for Audrey’s benefit in any given year was to be re-invested in the trust, so long as the law permitted the trustees to do so. (There is a 21-year limit during which the income can be accumulated in a trust). Mr. Henson’s will said that if the law required any income to be disbursed that could not be used for Audrey’s benefit, it should be given to the local community living association. The will specifically said that no part of Mr. Henson’s estate, including the trust, should ever “vest” in his daughter Audrey, but that her only claim was to the money actually paid to her. “Vest” means to come into her possession.

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The trustees were requested to use their discretion in such a way as to “maximize the benefits” which Audrey would receive from other sources. Without saying so, it was obviously Mr. Henson’s intention that the trust money should not be spent in a manner that could be used by the government as a valid reason for reducing her monthly benefits under the “Family Benefits Act”, which has since been replaced by the Ontario Disability Support Program Act in 1998.

 

The will stated that whatever was left in the trust when Audrey died was to be paid to the local association, which had provided support services to Audrey over the years. This “residual” bequest could have been made to anyone. Sadly, Audrey Henson died before the case made its way through the appeal process.

 

This wording had the effect that the trust money was only available to be used as Mr. Henson would have used his own money to provide those little extras for his daughter while he was still living

 

 

COURT OF APPEAL DECISION ONTARIO FOR:

• A TESTAMENTARY HENSON TRUST PRECEDENT

COURT OF APPEAL FOR ONTARIO

BEFORE GRANGE, KREVER, JJA., CRAIG, J. (ad hoc)

DATE SEPTEMBER 22, 1989

DISPOSITION OF APPEAL  22 Sept 89

Audrey Henson being now deceased her solicitors are removed from the record.

 

Despite Ms. Twohig's very able argument we are in agreement with the decision and the reasons therefore of the *Divisional Court.  This appeal must therefore be dismissed.  The Appellant (MCSS) shall pay the costs to the estates of Leonard and Audrey Henson.

Signed

"Grange, JA"

*The Lower court decided that an absolute discretionary trust is not a liquid asset available for the maintenance of the recipient, so family benefits should not have been cut off.  To do so, the Government would have to change the social assistance legislation.  See attached copy of the reasons for judgement in the Division Court.

Representing the Appellant:Kim Twohig of the Ministry of the Attorney General for the Ministry of Community & Social Services.

Representing the Respondents: Maurice C. Cullity, Q.C. for the Estate of Audrey Henson.

G. Sadvari for the trustees of the Estate of Leonard Henson.

Gary Hearns for the Guelph Wellington Association for Community Living.

 

Precedent for Absolute Discretionary Trust in a Will

This was the type of clause that was judicially considered in the Henson Case.

 

Fund for Son

If my son, John, survives me, to set aside and keep invested one quarter of the residue of my estate as a fund and during the lifetime  of my said son to pay the annual net income derived therefrom to or for any one or more of my children and my grandchildren from time to time living in such proportions and in such manner as my Trustees in their absolute discretion consider advisable from time to time, and failing such determination in any year, to those of my issue other than my son, John, alive at the end of such year in equal shares per stirpes; provided that my Trustees may at any time or times pay to or for the benefit of any one or more of my children and grandchildren from time to time living such amount or amounts out of the capital of such fund as my Trustees in their absolute discretion consider advisable.

 

I declare that, without in any way binding the discretion of my Trustees, it is my wish that my Trustees in exercising their discretion hereunder primarily consider the comfort and welfare of my son, John, and at the same time take such steps as may be necessary or desirable to maximize the benefits which my said son would receive from other sources if payments of income and capital from such fund were not paid to him or if such payments were limited as to amount or time.  I expressly declare that my Trustees shall not be required to maintain an even hand between the income beneficiaries and the capital beneficiaries when investing and administering this fund, but may in their absolute discretion, favour one class of beneficiary over another.  It is my further wish that during the lifetime of my said son my Trustees consult with the (enter applicable name of Association) or Community Living with respect to the care and maintenance of my said son.

 

Upon the death of my said son, such fund or the amount thereof remaining shall fall into and form part of the residue of my estate.

 

Residue

            During the lifetime of my daughter, Janice, to keep invested the residue of my estate and to pay any amount or amounts or the whole of the annual net income therefrom together with any amount or amounts or the whole of the capital thereof to or for the benefit of my said daughter as my Trustees shall, in the exercise of an absolute and unfettered discretion, consider advisable from time to time.  Any income not so paid in any year shall, until the date twenty-one (21) years after the date of my death, be accumulated by my Trustees and added to the capital of such residue, provided, however, that after the date twenty-one (21) years after the date of my death, then the said income not so paid in any year to or for the benefit of my said daughter be paid to my issue other than my said daughter alive at the end of such year in equal shares per stirpes.  I declare that the residue of my estate and the income therefrom shall not vest in my said daughter and the only interest she shall have therein shall be the payments actually made to her or for her benefit therefrom.

 

            Without in any way binding the discretion of my Trustees I further declare that it is my wish that  in exercising their discretion in accordance with the provisions of this paragraph, my Trustees consult with the (enter applicable name of Association) or Community Living and that they take such steps as will maximize the benefits which my said daughter would receive from other sources if payments from the income and capital of the residue of my estate were not paid to her, or if such payments were limited as to amount or time.  In order to maximize such benefits, I specifically authorize my Trustees to make payments varying in amount and at such time or times as my Trustees in the exercise of an absolute discretion consider advisable keeping in mind that the comfort and welfare of my said daughter is my first consideration.  I expressly declare that my Trustees shall not be required to maintain an even hand between the income beneficiary and the remainder beneficiaries when investing and administering this fund but may in their absolute discretion favour one class of beneficiary over another.  Upon the death of the survivor of my said daughter and me, my Trustees shall pay out of my estate the funeral expenses of my said daughter and, subject thereto, the residue of my estate or the amount thereof then remaining shall be paid or transferred to my issue then alive in equal shares per stirpes.

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INFORMATION FROM:

Rod Walsh LL.B

Legal Counsel Ontario Association for Community Living 

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