Canada’s highest court has ruled that an interest in a fully discretionary trust set up for a B.C. woman with a disability should not be considered an asset when determining her eligibility for public housing assistance.
In a decision handed down on Friday, the Supreme Court of Canada opined for the first time 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.
Since the trust is set up to be fully discretionary — in that there is no direct entitlement of the beneficiary to the trust’s assets — the general rule in most provinces is that funds in these trusts, set up by a parent or other relative, can be established without affecting the beneficiary’s entitlement to provincial government benefits.
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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 such that the daughter would be disqualified from certain asset-tested government benefits. The court ruled in her favour, finding that the assets did not belong to her.
The recent case involved a woman (“S.A.”) with disabilities who has resided 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.
S.A.’s father passed away and her 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 to determine her eligibility for rental assistance. As a result, on June 1, 2015, S.A. stopped receiving rental assistance and since then she 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 therefore that MVHC was entitled to require that she disclose the value of the trust before it would consider her application for rental assistance.
The Supreme Court disagreed and ruled that since S.A. “has no actual entitlement to the trust property under the terms of the trust, 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.”
Reached by phone on Friday, S.A.’s lawyer, Michael Feder of McCarthy Tétrault LLP in Vancouver, who took the case on a pro bono basis, said he 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.”
Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Financial Planning & Advice Group in Toronto.