What will happen to my child when I’m gone?
Henson Trust: Providing for a disabled family member
It’s something that is always on the mind of parents, “what will happen to my children if something happens to me?” This question can prove to be even more of a worry to parents of a disabled child.
It may appear at first look that government provided support payments might be the answer to many parents concerns. However, the law in Ontario states that a person with disabilities must be deemed to be living in poverty in order to qualify for support payments. The definition of living in poverty in the province of Ontario is having liquid assets under $5000 and not receiving gifts or other voluntary payments of over $5000 in a 12 months period.
This brings us to the underlying question: How do I leave enough money to provide for my child with special needs, without taking away the government benefits they receive?
Some families use what is called a disability expense trust, which in Ontario allows a child to inherit up to $100,000 without penalty. This may not be enough to care for the child if the parent dies while they are still young. There are also several limitations presented by this option.
With a Henson trust, there are no restrictions on how much can be left to the disabled family member or how it’s paid out for their benefit. The terms of the trust are worded so that the individual would not technically own the assets. In a typical Henson trust, the trustees make distributions to the disabled family member as needed over their lifetime. In other words, the key feature of the trust is that the trustee/s retains absolute discretion to decide when and how much will be paid to the disabled family member.
A common concern for parents with a disabled child is that they won’t have sufficient funds left over to care for their child once they pass. An effective method for funding the Henson trust would be through the proceeds of a life insurance policy. The parent or guardian would purchase a life insurance policy on their own life with benefits paid out to the trust.
While most Henson trusts are established pursuant to a will, an individual with sufficient assets may also want to consider establishing a Henson trust during their lifetime. An inter vivos Henson trust would benefit the disabled family member under the above circumstances.
Henson trusts can prove to be very complex and it is important seek professional advice when dealing with them. If your lawyer, accountant and financial advisor are not familiar with Henson trusts, please feel free to contact me. No question is too small.