Help special-needs clients have enough for the future

The Expert

Herberts Berzins is a consultant with Investors Group in Whitby, Ontario. Berzins, who has cerebral palsy, focuses on clients in Ontario with special needs. “[There’s a] lack of proper information available,” he says.

Client Profile

Joanne, a 68-year-old single mother in Ontario with an adult son, Jack, 43. Jack has cerebral palsy.

The Problem

Joanne is getting to an age where she can no longer care for her son’s day-to-day needs. The two are living in a bungalow—owned by Joanne, with a tenant—but they have not prepared financially to deal with Jack’s needs when Joanne passes away.

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“[Jack] needs help on everything from toileting to bathing, so the costs are quite substantial,” Berzins says. “There are going to be big changes after the demise of his mom because now we have to provide for attendant care support.” Personal care costs range from $15 to $25 an hour, while nursing care costs between $25 and $65 an hour, according to recent Sun Life Financial research.

The Solution

Joanne wants Jack to inherit the estate when she dies, but she’s concerned the additional funds will affect Jack’s Ontario Disability Support Program (ODSP) payments. The ODSP regulations exempt up to $100,000 held in a trust from the asset calculation*. That income and capital must be available to be used for the recipient’s maintenance.

“You have to have a will in place with a Henson Trust and you need to have someone in charge of the trust,” Berzins says. “Then they can take the assets and make them available to the person on ODSP, which will not be affected.”

Henson Trust wording must include “absolute and unfettered discretion” and “shall not vest,” to indicate no one can compel the trustee to liquidate the trust or influence spending.

The Henson Trust allows a trustee complete discretion so he or she can pay the necessary expenses of the person on ODSP. “You can prevent the person on ODSP from blowing the money. If it’s a regular trust fund, there’s the possibility that the person can withdraw the money, have a good time and there’s nothing left over. As far as ODSP rules are concerned, only the Henson [works].

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“If you need money, you approach the trustee and ask for, say $5,000 for a new lift in your home. The trustee says ‘Fine,’ and makes out a cheque to the supplier of the lift; and it’s a done deal.”

Be Careful

Henson trusts are permitted under ODSP rules because they are discretionary and the beneficiary has no direct control of the funds, Berzins notes. “So when you pick someone to be the trustee, make sure the person is reliable and has integrity.”

In cases of conflict where the beneficiary wants more money than the trustee thinks is reasonable, a certain amount of friction can develop, Berzins says. “[The advisor] can act as a go-between. If the person on ODSP wants money and the trustee says no, I can go in to help mitigate the situation.

“Thankfully, I haven’t run across it. However, I have heard of situations where the trustee—due to declining health and increased age—has found that the Henson trust has been difficult to manage.”

That’s why it is recommended that when creating a Henson trust, you provide co-trustees or options for the trustee to relinquish control to a secondary trustee.

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Lawyer “The trust itself is something I recommend, but I don’t actually build the trust.”

In terms of trustee choice, “It’s up to mum. She’s in charge, because she’s setting up the trust in her will.” A sibling is an obvious choice for trustee in such cases, although Berzins warns that a conflict of interest can arise if the beneficiary dies and remaining funds are left to the sibling. “I make the family aware of the situation and they decide.

“Sometimes they decide the leftover money will go to a charity to avoid that conflict.”

Degree of difficulty for the advisor 6/10

“Henson trusts are fairly straightforward,” Berzins says. “It allows the estate to put funds aside so the person on ODSP knows the money is there. It’s like a bank machine: you know [the amount] in the account, but the beneficiary doesn’t know the PIN.”

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Client acceptance 9/10

Clients are usually quick to accept the Henson Trust suggestion, once their concerns about the ODSP are alleviated. “There’s a lot of wrong information out there—people are told to spend their money as quickly as possible to get back on the ODSP, which they don’t have to do,” Berzins says. “Also, the ODSP office is overworked, so they don’t always have the ability to give out the correct information in a timely manner.”

*The original version of this article erroneously stated ODSP rules on exempt income set a $5,000 limit for an inheritance trust. You may read more about Henson Trusts here. Return to the corrected sentence.