I have been asked to be atrustee and executor of a Henson Trust, so Ive been reading up a bit on what they are about. It is a type of trust designed to benefit disabled persons by allowing them to receive an inheritance without having to give up government benefits, such as the Ontario Disability Support Program (ODSP).
The trust, also known as an absolute discretionary trust, can perform this role because the trustee has absolute discretion in determining how to use the trust assets. The assets do not vest with the beneficiary and cannot be used to deny means-tested government benefits.
The trust can also provide income tax relief, shield assets from matrimonial division in event the beneficiary divorces, and offer immunity in most instances to creditor claims on the beneficiary. Some lawyers specialize in setting up these trusts and should be consulted.
WhereDoesAllMyMoneyGo.com did a poston Henson trusts in early 2008. He notes that they may be contested or denied in some provinces. Those thatallow them appear to be: Ontario, BC, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, and PEI.
The trustees and executors have several functions to perform.
First, they need to make funeral arrangementsand carry out the rest of the tasks an executor performs such as locating the Will, identifying and protecting assets and contacting beneficiaries.
Second,the executor transfers the share for the beneficiary of the Henson trust to the Trustee. The latter must ensure the disabled person never has an amount in their account that would disqualify them for government benefits, paying for whats required by making payments to the seller directly. An income tax return has to be filed for the trust each year.
Third, Section 27 of the Trustee Act requires the trustee to invest the trust monies in a manner that shows ordinary care, skill and prudence, to act as he or she would in their own affairs. The trustee needs to consider the following criteria in planning investments:
a) General economic conditions.
b) The possible effect of inflation or deflation.
c) The expected tax consequences of investment decisions or strategies.
d) The role that each investment or course of action plays with the overall trust portfolio.
e) The expected total return from income and the appreciation of capital.
f) Needs for liquidity, regularity of income, and preservation or appreciation of capital.
g) An asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries.
h) A trustee must diversify the investment of trust property to an extent that is appropriate to do: i) the requirements of the trust; and ii) general economic and investment market conditions.
Interesting. Im not too sure if followers of the passive school of investing would feel comfortable with some of those requirements. In particular, the first two would seem to require the trustee to anticipate macroeconomic trends. The other conditions, though, makesense. Of note, part d) appears to require taking correlations amoung investments into consideration and part h) talks about diversification.