Jan 25, 2019

The Supreme Court of Canada Approves the Henson Trust Principle

S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4 (CanLII)

The Supreme Court’s decision in this case will provide comfort to a particular class of disabled people who receive social assistance benefits. These are people whose parents are of fairly modest means, so the social assistance is necessary to them, but the parents do have some ability to top up the benefits of their loved one. The Supreme Court has affirmed the principle (widely accepted for the past few decades in Ontario) that a discretionary trust set up for the benefit of such a person does not count as an asset of the beneficiary.

Most social assistance programs provide that a person cannot qualify for benefits if he or she has any significant financial assets. This might create an unpleasant quandary for the parents of disabled children. Social benefits by themselves are rarely generous enough to bring a recipient above the poverty line. An aging parent who has modest assets to leave in a will to a disabled child might see this as futile. The ordinary rules would require the bequest to be used up first before social assistance is received. Once the bequest is exhausted, the recipient goes back onto benefits and remains poor with no hope of alleviation.

This quandary was mitigated by a 1989 decision of the Ontario Divisional Court involving a disabled person by the name of Henson. Ms. Henson was a disabled adult, whose father established a trust of about $82,000 for her benefit. It was a discretionary trust governed by three trustees, and Ms. Henson had no absolute right to demand any payments from it. That remained at the discretion of the trustees. In addition, the trust was structured to prevent the operation of what is know as the rule in Saunders v. Vautier, which ordinarily allows the adult beneficiaries of a trust to demand that it be collapsed. In this case, the trust provided a “gift over” to a charity in the event that it was collapsed, so Ms. Henson could never be the recipient of the residue in it. With these conditions, the court ruled that the assets in the fund were not assets of Ms. Henson, and did not prevent her from receiving social assistance benefits. The “Henson Trust” concept has become widely accepted, but has never previously been tested at the higher court level.

In the present case, S.A. is a middle-aged disabled woman who lives in public housing in Vancouver. Rent subsidies are available to low-income tenants. However, the housing authority became aware that S.A. was the beneficiary of a trust. It argued that the trust was her asset, and it would not consider her application for a rent subsidy unless she disclosed the value of the assets in the trust.

S.A.’s trust was structured to be a Henson Trust, and she sought to argue that it was not her asset. The British Columbia courts held that the housing authority was entitled to define the word “asset” according to its own preference, and therefore could consider the trust to be S.A.’s asset.

Writing for the majority, Justice Côté rejected the view that the ordinary legal meaning of the term “assets” would include the trust:

[53] In the case at bar, the Chambers Judge arrived at the opposite conclusion: that the meaning of the word “assets” is broad enough to include S.A.’s interest in the Trust, and that Henson does not “[support] a conclusion that [S.A.’s] interest in the [Trust] is not an asset under her agreement with MVHC” (para. 57). According to the Chambers Judge, S.A.’s circumstances are unlike those of Ms. Henson — who did not have the power to “compel the trustees to make payments to her” — because S.A.’s status as a co-trustee empowers her, with her sister’s agreement, “to pay herself discretionary funds from income and capital” in accordance with the terms of the Trust (paras. 47-48). This appears to be the basis for his conclusion that S.A.’s interest in the Trust amounts to “more than a mere possibility” (para. 53).

[54] With respect, I am of the view that the Chambers Judge’s understanding of S.A.’s interest in the Trust represents an error of law. As explained above, S.A.’s status as a co-trustee does not change the fact that under the terms of the Trust, she has no fixed entitlement to the assets settled therein, and is precluded from unilaterally collapsing the Trust for her benefit (see para. 39 of these reasons). Given that the Trust only provides her with what is essentially akin to a mere hope of receiving some or all of the property at some point in the future, the Chambers Judge’s conclusion that S.A.’s interest in the Trust is “more than a mere possibility” — such that it falls within the meaning of the word “assets” as used in the Assistance Application — cannot stand.

The Supreme Court therefore issued a declaration that the housing authority is required to consider S.A.’s application for a rent subsidy without considering her assets in the trust.

In reviewing the Henson Trust principle for the first time, the Supreme Court has provided some legal clarity. Unfortunately, the decision will not provide complete certainty, as it was explicitly limited to the facts of this case and the way that the policy for providing rent subsidies was structured. It leaves open the possibility of some other type of social assistance program for which such assets would be taken into account:

[55] I would add that these reasons should not be taken to suggest that the interest of a person with disabilities in a properly constituted Henson trust can never be treated as an “asset” for any purpose whatsoever. As the Court of Appeal observed, “[w]hether benefits from a discretionary trust must be taken into account will vary from program to program and depend upon the rules and regulations that govern eligibility for any particular program” (para. 47). The eligibility criteria associated with any social assistance program must be analyzed on their own terms to determine whether and, if so, how an interest in a Henson trust factors into any applicable means test.

Nevertheless, the Supreme Court’s stamp of approval for the Henson Trust principle has strengthened it as a support for disabled people. Even before this decision, Henson Trusts had widespread acceptance in a number of provinces outside Ontario. In Alberta, previous legislation called for the value of trusts to be included in assets. However, in 2018 An Act to Strengthen Financial Security for Persons with Disabilities (SA 2018, c 12) made Henson Trusts possible there.