By Allison A. Curley
On January 25, 2019, Côté J., writing for the majority, noted that for the first time ever, the Supreme Court of Canada was considering the nature and effect of Henson trusts, and how they operate in Canada (2019 SCC 4).
S.A. v Metro Vancouver Housing Corporation
The Respondent in this case, the Metro Vancouver Housing Corporation (MVHC), is an organization that operates subsidized housing complexes. MVHC provides rental assistance to eligible tenants. In order to qualify as an eligible tenant, an applicant tenant's assets cannot exceed $25,000.
S.A. is a person with disabilities, and has lived in a MVHC housing complex since 1992. Between 1992 and 2015, S.A. received rental assistance from MVHC.
In 2012, a trust was settled for S.A.'s benefit. S.A. and her sister are co-trustees of the Trust, and together they have the discretion to pay from the Trust so much of the income and capital that would be for the benefit of S.A. S.A. cannot compel the trustees to make payments to her from the Trust, and she also cannot collapse the Trust.
In 2015, MVHC asked S.A. to disclose the balance of the Trust. S.A. refused. MVHC advised S.A. that if S.A. refused to disclose the balance of the Trust, it could not approve S.A.'s application for rental assistance. MVHC took the position that S.A.'s interest in the Trust was an "asset".
What is a Henson Trust?
A Henson trust is type of trust that confers upon the trustee(s) the ability to exercise complete discretion in making payments from the trust for the beneficiary's benefit. Henson trusts are structured in such a way that the beneficiary cannot compel the trustee(s) to make payments from the trust. Further, a beneficiary of a Henson trust also does not have the ability to collapse the trust unilaterally.
The Henson trust was initially recognized in Canada by the Ontario Divisional Court in 1987 ((1987) 28 ETR 121 (Ont. Div. Ct.)). In Ontario (Director of Income Maintenance, Minister of Community & Social Services) v Henson, the subject of the litigation was whether a person's interest in a trust could be considered a "liquid asset". In this case, the beneficiary of the trust was a person with disabilities, and a testamentary trust had been settled for her benefit. The Ontario Divisional Court held that the beneficiary's interest in the trust could not be defined as a "liquid asset", as she could not compel the trustees to make payments to her from the trust. The Ontario Court of Appeal subsequently affirmed the decision of the Ontario Divisional Court in 1989.
Henson trusts are also referred to as disability trusts, as they are sometimes settled for persons with disabilities. Persons with disabilities will sometimes qualify for social assistance programs, so long as their assets do not exceed a certain threshold. If, for example, a person with disabilities became entitled to an inheritance or a personal injury settlement, they could be deemed ineligible for the benefits conferred under a social assistance program. In effect, a settlement or inheritance could disqualify a person from receiving social assistance benefits they would otherwise be eligible for.
In S.A. v Metro Vancouver Housing Corporation, the main issue before the Supreme Court of Canada was: should funds held in a Henson trust be considered an "asset"?
The Supreme Court of Canada's Position on Henson Trusts in S.A. v MVHC
The Supreme Court of Canada held in this case that because S.A. had no ability to compel payments to be made to her from the Trust, and because she could not unilaterally collapse the Trust, she had no "actual entitlement to the trust property". For these reasons, Côté J., for the majority, held that the MVHC had no reason to concern itself with an applicant tenant's contingent interest in a trust.
In their analysis, the Court evaluated definitions of the word "assets". Côté J. noted that an interest in a Henson trust cannot be used to discharge debts or liabilities, because the beneficiary has no ability to compel the trustee(s) to make payments from the trust. At paragraph 49 of the decision, Côté J. held that:
"Unless and until distributions are made in her favour, this interest is therefore not something she can use to pay the monthly rent that she owes MVHC, or to discharge her other debts and liabilities. In short, there mere fact that she has an interest in the Trust does not mean that her financial situation is ameliorated in any meaningful way before distributions are actually, if ever, made for her benefit." (para 49)
Of note is that Côté J. opined that the reasons in the S.A. v MVHC decision ought not be interpreted as meaning that an interest in a Henson trust can never be treated as an asset. Côté J. suggested that, "[t]he 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". (para 55)
In the S.A. v MVHC case, however, Côté J. declared that S.A. has a right to have her eligibility application considered by the MVHC, and further, that S.A.'s interest in the Trust is not an "asset" in the context of the eligibility application.
Considering a Henson Trust
If you are a person with disabilities, or if a loved one is a person with disabilities, you may consider settling a Henson trust. An estate planning lawyer will be able to provide you with the information you need in deciding whether a Henson trust may benefit you and your family.