ProInsure - Business Insurance, Estate and Succession Planning
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Parents want to protect their children. For the parents of children with a disabilities, this is especially important, as their child may not have the financial means or the capacity for financial independence. When estate planning, one option these parents have is to set up a Henson Trust.
The Henson Trust was first created in Guelph, Ontario, in 1989, when the Henson family wanted to set up a trust for their disabled daughter. A Henson Trust protects a disabled child’s disability benefits.
The following is information about the Trust, as published by Tax, Retirement & Estate Planning Services at Manulife Financial. (Note: the Henson Trust may not be available in Alberta and Saskatchewan, and is at the discretion of the Social Ministry in Quebec).
“When formulating an estate plan involving disabled beneficiaries, the fundamental objective of most families is to provide security and support for the beneficiary through a bequest, while ensuring that basic government support for the disabled person will continue. Legislation in Ontario contains provisions as to what level of income and assets a person in receipt of a disability pension can own, without affecting his or her benefits. Any income or assets received by the person over and above the prescribed limits will affect the pension. In Ontario, a beneficiary may receive up to $100,000 in a trust, provided that the capital of the trust arises out of insurance proceeds or from an inheritance.”
In Ontario, a Henson Trust can be used to avoid the disabled recipient’s disability benefits from being discontinued. If the trust is a Henson Trust, no monetary limit applies, however payments from the trust must comply with provincial disability legislation. The Henson Trust concept arose out of a 1989 Ontario Court of Appeal decision (Ontario Ministry of Community and Social Services v. Henson). In that case, Miss Henson was a disabled beneficiary receiving Ontario disability benefits. She was also named as a beneficiary under a testamentary trust which was completely discretionary. The Trustee had absolute discretion as to when and how much money Miss Henson would receive. The Court held that due to this wide discretion, the beneficiary had no control over, and no way of accessing, the trust fund and as such, the monies held in trust were not considered an "asset" under the legislation.
It is important to note that the Henson Trust must be drafted correctly in order to ensure the continuation of disability benefits. An experienced estates solicitor should be consulted. As well, due to the considerable decision-making power given to the Trustee in these situations, the Trustee should be chosen with great care. Where the value of the trust fund is significant, it may be advisable to name a Corporate Trustee.
Life insurance and a Henson Trust
Life insurance is an excellent source of funds for a Henson Trust.
ForestersTM new “Family Life” permanent life insurance policy is a policy worth considering. When a parent (between the ages of 15-55) purchases a policy to fund the Henson Trust, the Family Life policy includes a built-in $3000 free convertible term life insurance policy for each child.
In order to qualify for this free benefit, the child must be under 18, and the insurance stays in effect to the child’s 25th birthday. The $3,000 of term insurance is convertible to any permanent plan then offered by ForestersTM for this conversion, for each insured child, without evidence of insurability. An additional $7000 of permanent life insurance may be purchased for the child making the total $10,000 of life insurance protection without any medical questions or underwriting.
I do not know of any other life insurance company in Canada that is offering free life insurance to the children of insured policy owners without requiring any medical evidence or underwriting.
Reena.org, is a non-profit social service agency dedicated to helping children, adults and senior citizens with developmental disabilities to realize their full potential and to become integrated into the mainstream of society.
Call Nick Godfrey 905-815-7186 or email Nick@ProInsure.ca to discuss or ask questions.
Foresters™ is the trade name and a trademark of The Independent Order of Foresters, a fraternal benefit society, 789 Don Mills Road, Toronto, Canada M3C 1T9; its subsidiaries are licensed to use this mark. Underwritten by The Independent Order of Foresters.