Supreme Court ruling a reminder to advisors about disability planning tool

Nearly every advisor has a family among their client base that includes someone living with a disability. Fortunately, there are several tax tools that these families can use to help plan for those people.

Most advisors are likely familiar with the Registered Disability Savings Plan, with its generous government grants and bonds. But another popular planning vehicle—the Henson trust—recently got a vote of approval from Canada’s highest court as a valid planning vehicle to protect government benefits.

In January, the Supreme Court of Canada (SCC) ruled that an interest in a fully discretionary trust set up for a B.C. woman with a disability is not considered an asset when determining her eligibility for public housing assistance.

This was the first time that the SCC opined on the validity of what’s known as a Henson trust. This type of trust is often used to protect the assets, including an inheritance, on behalf of a beneficiary with a disability and to preserve the beneficiary’s rights to collect asset-tested government benefits and entitlements.

Henson trusts are set up by a parent or other relative, during their lifetime or upon their death, to be fully discretionary: the beneficiary has no direct entitlement to the trust’s assets. The general rule in most provinces is that funds in these trusts can be established for a beneficiary without affecting entitlement to provincial government benefits.

The trust got its name from an Ontario court decision involving a father who established a fully discretionary trust for his daughter. The Ontario government tried to look through the trust and disqualify the daughter from receiving certain asset-tested government benefits. The court ruled in her favour, finding that the assets did not belong to her.

The SCC case involved a woman with disabilities (S.A.) who has lived in a Metro Vancouver Housing Corporation (MVHC) subsidized housing complex since 1992. She had been receiving rental assistance from MVHC every year until 2015. Tenants who wish to receive rent subsidies must demonstrate, on an annual basis, that they meet the eligibility criteria by completing and submitting an assistance application. MVHC limits eligibility for rental assistance to tenants who have less than $25,000 in total assets.

When S.A.’s father passed away, one-third of her father’s estate was placed into a Henson-type discretionary trust in 2012 “for her care and maintenance.” In 2015, MVHC requested that S.A. disclose the balance of the trust. She refused, arguing that her interest in the trust was not an “asset” that could affect her eligibility for rental assistance. MVHC advised her that it was unable to approve her application as, in its view, her trust was an asset and its value was required for it to determine her eligibility. As a result, on June 1, 2015, S.A. stopped receiving rental assistance and since then has been paying her full rent “under protest.”

The lower courts held that the meaning of the word “assets” as used in the tenancy agreement was broad enough to encompass S.A.’s interest in the trust, and that MVHC was therefore entitled to require that she disclose the value of the trust before it would consider her application for rental assistance.

The SCC disagreed. Since S.A. “has no actual entitlement to the trust property under the terms of the trust,” the top court ruled, “her interest in the trust is not an asset that could disqualify her from being considered by MVHC for a rent subsidy. Accordingly, S.A. was eligible to be considered by MVHC for rental assistance in 2015.”

S.A.’s lawyer, Michael Feder of McCarthy Tétrault LLP in Vancouver, who took the case on a pro bono basis, was pleased with the decision. “Had it gone the other way, it would have upended a lot of careful planning, as these trusts are used widely by friends and family of persons with disabilities,” he said. “They have a laudable purpose and serve the public good.”

Hopefully the attention given to this ruling will ignite renewed interest among the advisory community in this important planning vehicle for persons with disabilities.

Jamie Golombek , CA, CPA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Financial Planning and Advice in Toronto.

Jamie Golombek

Tax & Estate

Managing Director, Tax and Estate Planning, CIBC Private Wealth Team Jamie Golombek is Managing Director, Tax and Estate Planning with CIBC in Toronto. As a member of the CIBC Private Wealth team, Jamie works closely with advisors from across CIBC to support their clients and deliver integrated financial planning and strong advisory solutions. He joined the firm in 2008 after 12 years with a global investment company, where he was involved in both internal and external consulting on all areas of taxation and estate planning. Jamie has also worked for Deloitte as a tax specialist in the Toronto office, where he specialized in both personal and corporate tax planning. Jamie is quoted frequently in the national media as an expert on taxation. He writes a weekly column called “Tax Expert,” in the National Post, has appeared as a guest on BNN, CTV News, and The National, and for several years was a regular personal finance guest on The Marilyn Denis Show. He received his B.Com. from McGill University, earned his CPA designation in Ontario and qualified as a US CPA in Illinois. He has also obtained his Certified Financial Planning (CFP) and Chartered Life Underwriting (CLU) designations. In 2023, Jamie was named a CPA Ontario Fellow. The FCPA is the highest distinction that can be bestowed upon a CPA who brings distinction to themselves and to their profession through leadership and achievement in their professional, community or personal lives. Jamie is a past chair of the Investment Funds Institute of Canada’s Tax Working Group. He is also a member of CPA Ontario, the Illinois CPA Society, the Estate Planning Council of Toronto, the Canadian Tax Foundation and the Society of Trust and Estate Practitioners. For nearly two decades, Jamie taught an MBA course in Personal Finance at the Schulich School of Business at York University in Toronto.