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Bequeathing Money to the Disabled Using a Discretionary
Trust
Proper estate planning is important for everyone, but can be especially crucial if you wish to leave money
for the care of disabled loved ones.
In Ontario, many disabled adults are eligible for Ontario Disability Support Plan (ODSP) benefits. However, the ODSP
eligibility criteria include prescribed limits on the amount of assets the disabled person may own,
as well as limits on their income.
If someone receiving ODSP payments receives a sizeable inheritance, it will generally result in their government
benefits being terminated. Estate planning for the care of disabled people therefore involves a careful
balancing act. A discretionary trust may help you achieve the result you want.
Using a Discretionary Trust
The primary vehicle for making money available to a disabled person is called a discretionary trust
or Henson trust.
A trustee, who you name in your will, controls such a trust. The trustee has absolute discretion
(hence the name of the trust) to disburse funds to the beneficiary or not to disburse funds. The trustee also controls
the amount and frequency of the disbursements.
Since the trustee has control, and the beneficiary cannot compel the trustee to give them money, this means the
beneficiary does not have a liquid asset. As a result, the trust does not affect their ODSP eligibility.
However, it should be noted that the trustee would need to exercise caution and good judgement when disbursing
funds from the trust. A lump sum cash payment to the beneficiary, even though it may only be a small portion of
the trust as a whole, may take the beneficiary over the maximum asset level for ODSP eligibility and thus jeopardize
their benefits. It is better for the trustee to make purchases on behalf of the beneficiary as needs arise.
In your will, you may note how you wish the trustee to use the money. However, you should not provide specific
directions since it may compromise the legality of your trust. For example, you may note that you “wish” the money
to be used for providing “extra comforts and amenities” to the beneficiary but you should not direct the trustee to
spend $5,000 for the purchase of living room furniture.
Choosing a Trustee
Acting as a trustee for a discretionary trust is a role that may continue over a long period of time, and it
involves a high level of responsibility and awareness. For this reason, you will want to choose your trustee
carefully. Make sure they are fully aware of the ongoing nature of the obligation and that they are willing to take it on.
You will also want to choose someone in whom you have a great deal of faith. As noted, the trustee has absolute
discretion over the funds within the trust. This means that they are not obliged to make any payments to
the beneficiary or for the benefit of the beneficiary.
In all cases, you will want to designate an alternate trustee in the event that the initial trustee dies or is
otherwise unable to continue with their duties. If you anticipate the trust being needed over a lifetime, such
as when you leave money to a young adult who may live for decades to come, you may wish to appoint a trust company
to act as trustee.
Other Uses for a Discretionary Trust
In most cases, a discretionary trust is used to care for a disabled beneficiary. However, that is not its sole
function and it can be effectively used in other instances where the flow of money needs to be carefully controlled.
Discretionary trusts can be used to make money available to loved ones suffering from substance or gambling
addictions, or others who are unable to effectively manage money. In these cases, a discretionary trust gives
you peace of mind. You will know your loved ones have not been left out of your will altogether, yet you can
be assured your legacy will not be unduly squandered.
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