Canada's pope of Henson trusts
by Christopher GulyGoogle "Henson trust" and Ottawa trusts and estates lawyer Ken Pope's website is listed in the top five hits.
The 54-year-old sole practitioner has become an expert on the absolute discretionary trusts that emerged from the 1989 Ontario Court of Appeal decision in The Director of Income Maintenance Branch of the Ministry of Com mu nity and Social Services v. Henson.
The court upheld a 1987 Ontario Divisional Court decision that turned down the Ontario government's attempt to deny social assistance to Audrey Henson despite a provision her father, Leonard, made in his will to transfer his estate to three trustees to be held on his severely disabled daughter's behalf.
Ontario 's appellate court agreed that estate assets placed in a specific way in the care and control of a trustee to be administered on behalf of a beneficiary are not the beneficiary's assets and should not affect provincial benefits.
In these absolute discretionary or Henson trusts, trustees have the power to distribute - and withhold - the trust's income and capital as they see fit. Trusts can either be test amentary, and be taxed at graduated rates, or take the form of an inter vivos trust, and be taxed at top income tax rates at every dollar of income.
(A preferred beneficiary election, available when the beneficiary is severely disabled, allows for a joint election by the trust and preferred beneficiary to benefit from lower personal tax rates.)
Pope says while his clients seem to know about Henson trusts, many of his colleagues do not.
"One time in three, a client with a disabled dependent will go to a lawyer and get a Henson trust established as part of a will," he explains.
"But the other two times, it's either flawed or is just a trust for a child with a disability, which is even worse because such a trust normally states that the trustee is required to feed and house that child."
Pope says that people are going to lawyers who don't spend enough time focusing on estate planning and just "crank out simple wills because they think their clients want cheap, simple wills."
"That misses a lot of estate-planning opportunities that are very substantial and also misses the serious issue of children with disabilities who lose their benefits because lawyers didn't ask their clients if they have children with special needs who should have a Henson trust."
Pope says part of the problem is that a lawyer's secretary, and not the lawyer, often prepares wills in a standard format.
"Generally, the clientele has been led to believe by lawyers that lawyers know everything and clients figure if this is what the lawyer has given them, that's what they should have."
"But when you have senior lawyers my age telling their clients that they've done it correctly and it's clearly wrong - or they argue it's just a technicality - they clearly don't understand Henson trusts."
He says that not a week goes by when he's not dealing with someone who has received bad advice about Henson trusts from another lawyer.
"In one case, a son who's the executor of his mother's estate came to me saying his mother was assured by her lawyer that she had a Henson trust in her will and it turned out it wasn't included. And in another case, a client was told that there was no Henson trust in the will, but that it could be set up after the client died."
So, in those situations, Pope steps in and does a "fix" to correct the absence of or problem with a Henson trust in a will.
For instance, with one case in Brantford , a judge in Hamilton agreed to vary a will to include a Henson trust.
"There was no trust in the original will prepared by a since-retired lawyer in Simcoe, whose partners are still practising and were on the hook for it," explains Pope.
"The executors for the deceased woman said she thought she had a Henson trust when in fact there wasn't one."
"It was another case where people go to a lawyer and sign a will without even reading it or having it explained to them."
In another case late last year, a third-year law student dropped by Pope's office after visiting his recently deceased mother's lawyer and receiving conflicting information as to whether or not her will contained a Henson trust.
"The lawyer said yes but his paralegal assistant said the wording wasn't there," explains Pope.
"So the son's stomach started to tighten because his brother suffers from a mood disorder and would be affected by the absence of a Henson trust."
According to Pope, part of the problem is that lawyers who attended law school prior to the early 1990s would not have been taught anything about Henson trusts.
And he says that while the Ontario Ministry of Community and Social Services rewrote the policies and procedures of the Ontario Disability Support Program in 1993 to incorporate the Henson court decision, ODSP staff rarely informs their clientele about this provision.
Indeed, Pope, himself, may not have become an expert in Henson trusts had he not stumbled onto them while preparing for a lecture to the Ottawa chapter of the Schizophrenia Society of Canada.
"I looked into the statistics and discovered that in most cities in Ontario, more than one family in 10 has either a child or sibling with a disability receiving ODSP and these people had no way of finding someone with expertise to assist them with estate planning," he explains.
So, Pope specialized his legal practice to help families with a disabled member establish a Henson trust to ensure children with a disability are not penalized for their inheritance. Often they are, as he points out.
Anyone receiving ODSP benefits - at a maximum rate of $979 to cover shelter, food and clothing - cannot own more than $5,000 in liquid assets.
Says Pope: "A person with a disability must be deemed to be living in poverty to qualify for support."
However, an absolute discretionary trust, or Henson trust, is worded in such a way that a child with a disability is not considered to have personally received an inheritance since the trust specifically states that the funds are not in the name of the child.
"Unlike in a normal trust, the child has no control over and no ownership of the assets," Pope explains.
As a result, the ODSP benefits continue and the designated trustee can pay out the trust assets for the benefit of the child at the trustee's "absolute and unfettered" discretion.
Yet, unless a lawyer recommends a Henson trust, Pope says he often sees clients who opt for a disability expenses trust, which in Ontario only allows a child to inherit up to $100,000 without penalty - and - stipulates that the funds can only be used for expenses directly related to the child's disability, such as specialized medical care or a wheelchair.
Or, parents choose to designate multiple beneficiaries and then appoint a trustee who will dispense all of the money to the child with disabilities.
But that type of trust is subject to an annual review and the bulk amount of the trust will result in the disabled child being disqualified to receive ODSP benefits, says Pope.
And if Ontario lawyers are still uncertain about Henson trusts, they can always refer to British common law that dates back more than eight centuries.
"In medieval England , trusts were common to avoid giving back Crown land to the Crown when the person granted the land died or was off participating in the Crusades. So people would establish trusts to grant land to their children," says Pope.
"If someone's child decided to go into the holy orders and there was a vow of poverty, they couldn't give money to that child. It had to go to the order."
"However, they would set up a trust and the trustee would have absolute and unfettered discretion to administer the funds and the assets would not vest in the child."
"Just like Henson trusts. They are vows-of-poverty trusts. You have to have a disability and live in poverty."