antiquity
12-23-2002, 09:15 AM
Dec. 22, 2002. 01:00Â*AM
Henson trust ideal for disabled children
ELLEN ROSEMAN
"What will happen to my child after I'm gone?"
All parents agonize about this when their kids are young.
But the question lingers for parents of disabled children, who may never become self-sufficient adults.
The key is to leave enough money to provide for these special children, but without taking away the government benefits they receive.
Setting up a trust in a will is a common estate planning tactic. For disabled children, it's important to use a special trust called a Henson trust.
It's named after Leonard Henson of Guelph, who provided for his disabled daughter with a trust whose assets would be paid at the discretion of the trustee. This meant she didn't own the assets.
Henson was trying to bypass a provincial rule that said disability support payments would be reduced by the income received from an inheritance.
The Ontario social services ministry challenged the will and lost in court. A subsequent appeal by the government was dismissed in 1989.
This established the principle that an absolute discretionary trust, known as a Henson trust in Ontario, preserves the right of a child with disabilities to receive benefits.
These trusts aren't used enough, since lawyers don't always know about the Henson case.
"Lawyers look up `disability' in the precedents manual and create a trust arrangement that's simply structured to help a child with a disability," says Ottawa lawyer Ken Pope.
"What these precedents don't take into account is that the trust needs to be worded so the child is deemed not to have received the inheritance personally."
The document must stipulate that the disabled child has a life interest in the assets, but does not control or own them. This means he or she can continue to collect full benefits from the government.
Some lawyers use a disability expenses trust, which in Ontario allows a child to inherit up to $100,000 without penalty. This doesn't go very far if the parent dies when the child is still young.
A disability expenses trust is also too limiting. Funds can be used only for expenses directly related to the child's disability, such as specialized medical care or a wheelchair.
With a Henson trust, there are no restrictions on how much can be left to the child or how it's paid out for his or her benefit.
Pape has seen parents try to create their own options to protect the inheritance - for example, placing the money in the hands of a trusted family member or friend in a secret trust.
Such an arrangement leaves the beneficiary with no recourse, if the trustee goes bankrupt or loses the money through divorce or bad financial management, he says.
And, if the arrangement is discovered, the province can take legal action to get access to the money on behalf of the disabled person to offset disability support payments.
The choice of a trustee is critical to making the plan work, Pope says, since the trustee has absolute and unfettered discretion.
"It must be someone you trust, as there's a potential for abuse."
Brothers or sisters may have a conflict of interest, but they can be appointed to administer a trust with someone outside the family - a close friend or professional trustee (if the assets are more than $250,000).
If parents don't have enough money to leave behind, life insurance is an effective alternative. An insurance policy can be paid into an absolute discretionary trust for the child.
Pope has travelled across the province talking about the Henson trust. He advises parents ranging in age from their 30s to their 90s and has written several articles, which can be found at his Web site, http://www.kpopelaw.ca.
Besides writing a will and setting up a trust, parents should also prepare a comprehensive life plan for a disabled child.
Future caregivers need to get a complete picture of the person: Likes and dislikes, friends, education, preferred activities, particular means of expression.
"You can write a letter of intent, a wish list, and keep it outside the trust agreement," says John Dowson, a financial adviser in Newmarket, who specializes in estate planning for people with disabilities (http://www.life-trust.com).
The quality of life your child will have after your death is determined by the life planning that goes before, Dowson says.
We'll talk about planning your funeral in advance when Money 201 returns on Jan. 12.
http://www.thestar.com/NASApp/cs/ContentServer?GXHC_gx_session_id_=bff82d7e8bf62c8f&pagename=thestar/Layout/Article_Type1&c=Article&cid=1035775862318&call_pageid=968350072197&col=969048863851
Henson trust ideal for disabled children
ELLEN ROSEMAN
"What will happen to my child after I'm gone?"
All parents agonize about this when their kids are young.
But the question lingers for parents of disabled children, who may never become self-sufficient adults.
The key is to leave enough money to provide for these special children, but without taking away the government benefits they receive.
Setting up a trust in a will is a common estate planning tactic. For disabled children, it's important to use a special trust called a Henson trust.
It's named after Leonard Henson of Guelph, who provided for his disabled daughter with a trust whose assets would be paid at the discretion of the trustee. This meant she didn't own the assets.
Henson was trying to bypass a provincial rule that said disability support payments would be reduced by the income received from an inheritance.
The Ontario social services ministry challenged the will and lost in court. A subsequent appeal by the government was dismissed in 1989.
This established the principle that an absolute discretionary trust, known as a Henson trust in Ontario, preserves the right of a child with disabilities to receive benefits.
These trusts aren't used enough, since lawyers don't always know about the Henson case.
"Lawyers look up `disability' in the precedents manual and create a trust arrangement that's simply structured to help a child with a disability," says Ottawa lawyer Ken Pope.
"What these precedents don't take into account is that the trust needs to be worded so the child is deemed not to have received the inheritance personally."
The document must stipulate that the disabled child has a life interest in the assets, but does not control or own them. This means he or she can continue to collect full benefits from the government.
Some lawyers use a disability expenses trust, which in Ontario allows a child to inherit up to $100,000 without penalty. This doesn't go very far if the parent dies when the child is still young.
A disability expenses trust is also too limiting. Funds can be used only for expenses directly related to the child's disability, such as specialized medical care or a wheelchair.
With a Henson trust, there are no restrictions on how much can be left to the child or how it's paid out for his or her benefit.
Pape has seen parents try to create their own options to protect the inheritance - for example, placing the money in the hands of a trusted family member or friend in a secret trust.
Such an arrangement leaves the beneficiary with no recourse, if the trustee goes bankrupt or loses the money through divorce or bad financial management, he says.
And, if the arrangement is discovered, the province can take legal action to get access to the money on behalf of the disabled person to offset disability support payments.
The choice of a trustee is critical to making the plan work, Pope says, since the trustee has absolute and unfettered discretion.
"It must be someone you trust, as there's a potential for abuse."
Brothers or sisters may have a conflict of interest, but they can be appointed to administer a trust with someone outside the family - a close friend or professional trustee (if the assets are more than $250,000).
If parents don't have enough money to leave behind, life insurance is an effective alternative. An insurance policy can be paid into an absolute discretionary trust for the child.
Pope has travelled across the province talking about the Henson trust. He advises parents ranging in age from their 30s to their 90s and has written several articles, which can be found at his Web site, http://www.kpopelaw.ca.
Besides writing a will and setting up a trust, parents should also prepare a comprehensive life plan for a disabled child.
Future caregivers need to get a complete picture of the person: Likes and dislikes, friends, education, preferred activities, particular means of expression.
"You can write a letter of intent, a wish list, and keep it outside the trust agreement," says John Dowson, a financial adviser in Newmarket, who specializes in estate planning for people with disabilities (http://www.life-trust.com).
The quality of life your child will have after your death is determined by the life planning that goes before, Dowson says.
We'll talk about planning your funeral in advance when Money 201 returns on Jan. 12.
http://www.thestar.com/NASApp/cs/ContentServer?GXHC_gx_session_id_=bff82d7e8bf62c8f&pagename=thestar/Layout/Article_Type1&c=Article&cid=1035775862318&call_pageid=968350072197&col=969048863851