Are you planning to leave an inheritance for your child with special needs to ensure they are provided for during their lifetime? If so, be aware that an inheritance may disqualify your disabled child from receiving government assistance. An estate planning attorney can help you avoid that situation by setting up a “Henson trust” in your will.
Protecting entitlement to disability benefits
Eligibility for disability assistance in BC is based on specific income and asset thresholds. An inheritance may put a person beyond those thresholds, and as a result, that person’s entitlement to disability benefits can be reduced or eliminated. However, BC law states that a person receiving disability payments is permitted to receive “discretionary” benefits from a third party without affecting their eligibility for disability benefits.
Trustee discretion is the key to a Henson trust
The key feature of a Henson trust is discretion. The disabled child’s share of the estate is put into trust, and the trustee is given the ultimate discretion to decide whether, when, and how much will be paid from the trust income or capital to the beneficiary. The disabled beneficiary does not have a vested right to the income or capital of the trust, does not have the right to demand payment from the trust, and cannot collapse the trust. Since the assets are outside the disabled beneficiary’s control, they are not counted in the thresholds for entitlement to provincial disability assistance.
Setting up a Henson trust in your will
A Henson trust in a will is typically set up to exist for the lifetime of the disabled beneficiary. The trustee is given the absolute discretionary power to make distributions of income and capital to or for the benefit of the disabled beneficiary during their lifetime. When the disabled beneficiary dies, the remaining assets in the trust will be distributed to the beneficiary or beneficiaries of your choosing (for example, another family member or a charitable organization).
Choosing trustees and beneficiaries carefully
The discretionary nature of Henson trusts creates the potential for abuse. It is essential to choose the appropriate trustee or trustees who will manage the trust responsibly and exercise their discretion to enrich the disabled beneficiary. Careful consideration of residuary beneficiaries is also important to eliminate conflicts of interest (for example, it may not be wise to name one of your other children as trustee if that child is also the residuary beneficiary). It is worth noting that you can give a mentally competent disabled child a role in administering the trust by naming him or her as co-trustee of the Henson trust, provided that the trustees are required to make decisions by majority rule.
Talk to an estate planning attorney about Henson trusts
A properly structured Henson trust can serve as an excellent option to provide an inheritance to your disabled child while preserving your child’s entitlement to provincial government assistance. Contact an experienced estate planning attorney at Invicta Law Corporation for advice on Henson trusts and other planning tools to ensure your child with special needs is provided for financially.