All About Estates

Henson Trusts Revisited

In January, the British Columbia Court of Appeal released its decision in S.A. v. Metro Vancouver Housing Corporation (“S.A.”), 2017 BCCA 2, dismissing the appeal of S.A., who was the original Petitioner. In its reasons, the B.C. Court of Appeal includes a discussion of trusts commonly referred to as “Henson Trusts”[1]. On November 16, 2017, S.A. was granted leave to appeal the decision to the Supreme Court of Canada.

The appellant, S.A., is unable to work as a result of a disability. Her income is derived from benefits she receives under the B.C. Employment and Assistance for Persons with Disabilities Act. In addition to those benefits, S.A. qualified for a rental until in an affordable housing complex operated by the Metro Vancouver Housing Corporation (“MVHC”). As a tenant in the MVHC rental unit, S.A. was eligible to apply for a rental subsidy. To obtain a rental subsidy, tenants are required to apply on an annual basis. Rental subsidies are discretionary and are not guaranteed to everyone who qualifies for a rental unit. Pursuant to the MVHC “Asset Ceiling Policy” a tenant with assets in excess of $25,000 will not qualify. On the annual application, if the tenant’s assets exceed $25,000, the tenant must describe the assets. The Asset Ceiling Policy states that assets include, among other things, assets “in which you have a beneficial interest.”

S.A. applied for and received rental subsidies for several years. In 2010, S.A.’s father died and she was entitled to receive a share of the residue of the estate. S.A. brought a proceeding under the B.C. Wills Variation Act and in 2012 the Supreme Court of British Columbia ordered S.A.’s share of the residue to be held in a discretionary trust. MVHC learned of the inheritance from S.A. In 2015, MVHC wrote to S.A. to inform her that they could not complete her 2014 income review because the rental assistance application she submitted in 2015 did not provide particulars of her inheritance. The rental subsidy was ultimately terminated when S.A. declined to provide the value of the discretionary trust.

In the proceeding, S.A. argued that the discretionary trust should be not treated as an asset because she does not have a vested interest in the trust property and she is not entitled to compel distributions of income or capital to herself. Not surprisingly, MVHC argued that S.A. has a beneficial interest in the trust, notwithstanding that it is a discretionary trust. Both the chambers judge and the B.C. Court of Appeal agreed with MVHC, although the reasoning differs in some respects.

What is interesting about the case is that the B.C. Court of Appeal refers to the discretionary trust as a Henson Trust, although it does not contain the language we normally see in a “standard” Henson Trust. In the original Henson case, the issue was whether Ms. Henson’s interest in the residue of her late father’s estate was a “liquid asset” as that term was defined under the regulation to the (now superseded) Family Benefits Act (Ontario). That definition included, among other things, a “beneficial interest in assets held in trust and available to be used for maintenance”. Ms. Henson’s interest in her father’s estate was held in a fully discretionary trust. In addition to the typical language we see in a discretionary trust, the terms of the trust went on to expressly state that the residue of the estate and the income derived from it did not vest in Ms. Henson, and the only interest she had was in payments actually made to her or for her benefit. The court held that she did “not have a beneficial interest, as that term is used in the definition of liquid assets” (par. 8).

As noted above, the trust in the S.A. case is a typical discretionary trust and does not contain the additional language from the Henson case, but it is treated as Henson Trust by the Court of Appeal. That is consistent with the approach of both the B.C. Ministry of Social Development and Social Innovation and the Ontario Ministry of Community and Social Services. The Court of Appeal noted that the B.C. government has adopted a trust policy “consistent with the principles set out in Henson. Pursuant to that policy, except where the beneficiary has the right to end the trust and receive the trust capital, discretionary trusts are not considered to be an asset” (par. 44). ODSP Policy Directive 4.7 on “Funds held in trust” also refers to Henson Trusts as fully discretionary trusts. It describes the essential features of the trust as one that gives the trustee “absolute and sole discretion” over payments to the beneficiary, with no obligation on the trustee “to make the funds available to the person for his/her maintenance or support” (p. 4).

Essentially, what precluded the trust in the Henson case from being considered an asset was the definition of “liquid assets” which only included trusts that are “available to be used for maintenance” (a phrase not included in the relevant definition in the S.A. case). In other words, the definition did not include fully discretionary trusts, but rather trusts in which there was some obligation on the trustee to maintain the beneficiary. Under current ODSP rules, those trusts cannot exceed $100,000 or they will be considered an asset.

The ODSP Policy Directive goes on to caution that all of the terms of a trust must be read together, and simply giving the trustee discretion may not be sufficient (p. 4). It is therefore still advisable, at least in Ontario, to include the tried and tested language from the trust in the Henson case. However, both the B.C. trust policy and the ODSP Policy Directive are good reminders that if the typical Henson language is not included, it is not the end of the story. One must still consider whether the terms of the trust, read together, nevertheless meet the essential requirements of a fully discretionary trust. If they do, no other magic words are needed.

[1]       “Henson Trusts” take their name from the particular trust at issue in the 1987 decision of the Ontario Divisional Court in Ontario (Director of Income Maintenance, Minister of Community & Social Services) v. Henson, 1987 CarswellOnt 654.

About Darren Lund

Darren Lund is a member of the Trust, Wills, Estates and Charities Group in the firms Toronto office. Darren has expertise in a broad range of estate planning matters, including multiple wills, inter vivos trusts, disability planning, estate freezing, and planning for beneficiaries and assets outside Canada. Darren advises trustees and beneficiaries on all aspects of estate administration, both contentious and non-contentious, and his experience includes passing of fiduciary accounts, trust variations, post-mortem tax planning, and administering the Canadian estates of non-residents. He also speaks and writes on a variety of related topics such as estate planning for spouses and couples, inheriting overseas property and estate planning for persons with disabilities. He previously practised estates law at a large national law firm.

Email: dlund@fasken.com

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