Can you put your trust in a Henson trust? That depends, says the Supreme Court of CanadaS.A. v. Metro Vancouver Housing Corp., 2019 SCC 4 (CanLII)
On January 25, 2019, the Supreme Court of Canada considered, for the first time, “Henson trusts” and the nature of a disabled beneficiary’s interest in them for the purposes of determining eligibility for social benefits programs. A Henson trust, frequently characterized as an “absolute discretionary trust”, is an estate-planning tool that people (often parents) use to benefit a disabled person (often their child) with the goal of protecting the disabled beneficiary’s assets while preserving and maximizing their access to program benefits. The Court’s decision in S.A. v. Metro Vancouver Housing Corp. confirms Henson trusts are a valid estate-planning tool, but whether a particular Henson trust is effective to meet the goal depends:
- On the terms of the particular trust. Whether it’s a Henson trust – and the nature of the disabled beneficiary’s interest in it – will depend on whether it exhibits two essential features, giving the disabled beneficiary only a hope, and not an enforceable right, to distribution from it. Those structuring the trust must take care to ensure it does so.
- On the specific social benefits program terms. The impact of a Henson trust on a disabled beneficiary’s eligibility for or entitlement to a social benefits program is based on the specific terms of the program in issue. Depending on the program and the province, those terms could be set out in legislation, in regulations, or elsewhere. Those structuring a Henson trust need to be familiar with the terms of the target program(s) – and how courts have, or are likely to, interpret them.
- In some cases, on contract terms. Some program terms will be contractual – and contractual interpretation principles will apply to determine whether, and how, the disabled beneficiary’s interest in a Henson trust affects their eligibility to its benefits. Again, familiarity with those terms is helpful to structuring a Henson trust.
In S.A. v. Metro Vancouver Housing Corp., the not-for-profit Housing Corporation managed a subsidized rental housing complex under agreements with a B.C. government agency. However, the Housing Corporation offered additional rental assistance on a discretionary basis to tenants who satisfied eligibility criteria set out in the Corporation’s policy. The policy defined, among other things, “assets” for the purposes of applicant tenants’ eligibility to the additional assistance. S.A. had been residing in the housing complex since 1992, and had qualified for the rental assistance every year. In 2012, S.A. became the beneficiary of a Henson trust. Under its terms, the trustees had the absolute discretion to make payments from the income and capital for S.A.’s benefit; however, S.A. couldn’t compel the trustees to make any payments to her nor unilaterally collapse the trust. In 2015, the Housing Corporation requested that S.A. disclose the trust balance on the basis her interest in it was an “asset” that could affect her eligibility for the discretionary rental assistance. When S.A. refused, the Housing Corporation denied her assistance application on the grounds her interest in the trust was an “asset” and its value was required to determine her eligibility for assistance. But the majority of the Supreme Court of Canada judges disagreed:
It depends on the trust terms. The terms of the trust define the nature of the trust – and of the beneficiary’s interest in its assets. The Court described the two “essential features” of a Henson trust, characterizing the disabled beneficiary’s interest in them as “akin to a mere hope that some or all of [the trust’s] property will be distributed to [the beneficiary] at some point in the future”, with no actual enrichment or enforceable right to receive any of its income or capital:
- Trustees’ exclusive discretion to make payments. The trust terms don’t confer any fixed entitlements on the beneficiary: even if they require the trustees to consider whether to make any payments, they give the trustees ultimate and absolute discretion over whether to make any payments out of the trust to or for the benefit of the beneficiary – or whether not to. Thus the beneficiary doesn’t have an enforceable right to receive anything “unless and until”the trustee(s) decide to exercise their discretion in the beneficiary’s favour (unlike the beneficiary of a “fixed trust”, where the trustee has no discretion respecting distributions to the beneficiaries). The fact the disabled beneficiary is a co-trustee might not be relevant at all to the nature of their interest in the trust. In this case, it wasn’t: the limitations the trust terms imposed effectively prevented S.A. from unilaterally ordering trust payments to herself, giving her no more access to its assets than a beneficiary who’s not also a trustee of a Henson trust.
- Beneficiary can’t unilaterally terminate the trust. The structure of the trust prevents the beneficiary from terminating it on their own under the rule in Saunders v. Vautier. That rule permits a trust beneficiary (or multiple ones acting jointly) to terminate it and demand the trustee transfer the trust capital to them if the beneficiary has capacity – and is absolutely entitled to all the rights of beneficial ownership in the trust property. In this case, the trust terms requiring any remainder of the trust fund must pass to some third party upon S.A.’s death and specifically prohibiting her from appointing either herself or her creditors as remainder beneficiaries meant her interest in the trust wasn’t absolute.
It depends on the specific social benefits program terms. The Court issued an important caution: whether, and if so how, a Henson trust affects a disabled beneficiary’s eligibility for or entitlement to any particular benefits program must be determined on a case-by-case basis depending on the specific terms of the program that’s in issue.
In might depend on contract terms. In some cases, the terms of the “program” will be set out in a contract rather than in legislation or a regulation. Those cases will ultimately be a contractual dispute, and the principles of contractual interpretation will apply to ascertain whether, and how, the disabled beneficiary’s interest in a Henson trust affects their eligibility to the (contractual) benefits. And that was the situation in this case: the Court decided S.A. didn’t have a contractual entitlement to rental assistance from the Corporation even if she met the eligibility criteria, but the tenancy agreement imposed a contractual obligation on it to consider a complete application for rental assistance submitted by S.A. Whether S.A.’s interest in the trust was an “asset” the Corporation could consider depended on the interpretation of the word “assets” as used in the assistance application. The Court decided it wasn’t broad enough to encompass S.A.’s interest in the trust, so that interest wasn’t an “asset” that could disqualify her from the Corporation’s consideration for rental assistance.
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