Certainty for disability planning

The decision also confirms that a beneficiary of a Henson trust may be one of its trustees, and therefore involved in decision-making, as long as he or she has neither ultimate control of the trust nor the ability to wind it up.

“It’s helpful for [beneficiaries] to feel like they’re a part of the decision-making process even if they do not hold all the votes,” says Ewa Krajewska, partner at Borden Ladner Gervais LLP in Toronto, and a counsel for two intervener organizations in the case. “It’s empowering.”

In S.A. v. Metro Vancouver Housing Corp. (MVHC), the SCC ruled that the beneficial interest in a Henson trust belonging to S.A., a woman living with a disability, should not be considered her asset when determining her eligibility for rental assistance for publicly subsidized housing. The SCC overturned rulings by the Supreme Court of B.C. and the province’s Court of Appeal, both of which ruled that the trust should be considered S.A.’s asset.

Henson trusts are established so that assets held in the trust for the benefit of a person living with a disability won’t be considered the beneficiary’s assets.

“Having assets [held] in a trust that meets the Henson rules is an effective way of making finances available [to the beneficiary] as a security net,” says Peter Weissman, partner at Cadesky and Associates LLP in Toronto, “without compromising the ability to access government benefits.”

For a trust to be considered a Henson trust, the trustee must have absolute discretion in regard to distributions from the trust to the beneficiary, meaning that the beneficiary can’t compel a payment to himself or herself, and the beneficiary doesn’t have the ability to collapse the trust unilaterally. Henson trusts have been commonly used in disability planning since an Ontario court decision in 1989.

S.A. had been living in publicly subsidized housing in Vancouver since 1992 and receiving rental assistance. In 2012, following S.A.’s father’s death, a Henson trust was established for S.A.’s benefit. S.A. and her sister were the trustees, and both were required to agree in order to make decisions. In 2015, the MVHC asked for information regarding S.A.’s trust, including assets held in the trust, to determine whether she met the eligibility requirements for assistance. S.A. declined to give the MVHC that information on the grounds that the trust shouldn’t be considered an asset. The MVHC then indicated that without the information it was seeking, it could not process her application for assistance.

In the SCC decision, the court noted that the MVHC had not defined what it meant by “assets” in the tenant agreement between the MVHC and S.A. Applying the “ordinary” meaning of asset as being “valuable property that one can use to discharge debts and other liabilities,” the SCC found that S.A.’s interest in the trust didn’t qualify as such. While S.A. was one of two trustees, she had “no actual entitlement to the trust property” because both trustees had to agree in any decisions.

“S.A.’s interest in the trust is entirely contingent upon the exercise of the trustees’ discretion,” wrote SCC Justice Suzanne Côté, writing for the majority in the decision. “Unless and until distributions are made in her favour, this interest is therefore not something she can use to pay the monthly rent that she owes [the] MVHC, or discharge her other debts and liabilities.”

Despite the SCC’s ruling in favour of S.A., the court indicated a beneficiary’s interest in a Henson trust still could be considered an asset, and therefore be included in the consideration of eligibility for a support program. Each case would depend on how the rules governing the eligibility requirements for a particular disability program were written.

However, tax experts suggest that while governments and other organizations could alter the rules governing disability programs so that a beneficial interest in a Henson trust would be considered an asset, the likelihood is low that that will happen.

“The housing corporation could change its legislation – there would be no reason it couldn’t do that legally, as long as whatever they changed it to was constitutionally acceptable,” Weissman says. “But then they would be dealing with a political issue.”

Says Jan Musil, manager of tax and estate planning at IG Wealth Management, a division of Investors Group Inc. in Winnipeg: “No non-profit organization offering a program designed to benefit individuals with disabilities would want to be perceived to be restricting access in some unreasonable way.”

Nevertheless, lawyers drafting Henson trusts should be aware of the regulations governing relevant disability programs in order to reduce the risk of a beneficiary inadvertently losing access, says David Truong, advisor in the expertise centre of National Bank Private Banking 1859, a unit of National Bank of Canada, in Montreal. In addition, he says, a Henson must trust be drafted to meet the eligibility rules.

“The trustees need to be given total discretion,” Truong says. “Tax authorities will look into [a Henson trust]. It has to be written very precisely.”

Milne Estate (Re) Update

The Ontario Divisional Court has overruled a lower court’s decision in Milne Estate (Re) that had thrown into doubt probate planning involving the use of multiple wills. Last autumn, a probate court justice ruled that primary wills belonging to a couple were invalid due to uncertainty over what property was covered. The result was that all property fell into valid secondary wills and was subject to probate fees, defeating the planning. In January, the Divisional Court ruled that the probate court justice had erred.

“It’s interesting that the [higher court] clipped the wings of the probate court from what they think they can do,” says Keith Masterman, vice president of tax, retirement and estate planning with CI Investments Inc. in Toronto, who cheered the January decision.