"Cherish your visions and your dreams as they are the children of your soul, the blueprints of your ultimate achievements."
~ Napoleon Hill

Wednesday, November 21, 2007

Can I Really Do That - The Henson Trust in Nova Scotia

We've been discusssing the Henson Trust over the last couple. Today a look at another practical issue around the use of a Henson Trust.

Validity of the Henson Trust in Nova Scotia

Apparently the Department of Community Services (DCS) takes the view that Henson Trusts are not valid in Nova Scotia. In other words, go ahead and set one up if you want, but you are wasting your time and money. Because we will take the view that your child has access to assets and thus they will be ineligible for benefits.

Here is the 'scoop' on that, according to Mr. Pope. And remember this when you go to a lawyer to create a Henson Trust, either in the context of your Will or otherwise (which we will discuss later).

Discretionary trusts will not protect your child's access to government benefits.

A discretionary trust is a type of trust where the Trustee is given discretion as to what types of investments to invest in and as to whether and when to distribute money to the beneficiaries. This type of trust is fairly common in a Will where one of the beneficiaries is a minor. Even though with this type of trust, the Trustee has the discretion to decide whether or not to distribute money to the beneficiary, this won't be sufficient for our purposes. Because with a discretionary trust, the beneficiary (your child, in this case) would still have the legal right to go to court and have the Trustee's exercise of discretion analyzed to ensure that it has been exercised reasonably. And if the court find that the Trustee has acted unreasonably, it can compel him to pay benefits to the beneficiary.

You will recall , however, that the Henson Trust is an absolute discretionary trust, meaning that the Trustee cannot be compelled (forced) to disburse money for the support of the beneficiary. In other words, your child, as the beneficiary of such a trust, will have absolutely no legal right to go to court and force the Trustee to provide any money to her. Theoretically, the Trustee could decide to never disburse any money from the trust and there would be nothing that anyone could do about it. But that is the crux of the matter, the good and the bad. That lack of control by your child is what is required to protect their access to government benefits. And also, incidentally, why you will want to choose your Trustee with great care. You are giving them a lot of power over your child's life.

So why is the Department taking the view that Henson Trusts are not valid in Nova Scotia and we are telling you otherwise?



Anonymous said...

The Henson Trust - wow what choices/decisions parents have to make to ensure the welfare of their child. As you well pointed out, choosing who to appoint as trustee is so very important. Does nobody control the trustee? Scares me, must confess. But then ... nothing is obtained without risking something.

MMC said...

Thanks for the comment, eb.

With most of types of trust, the beneficiary could take the trustee to court in an effort to have the court review how the trustee has exercised its discretion. And perhaps have the court order the trustee to make payments. But with the Henson Trust, you are aboslutely right, nobody controls the trustee. Its the price of the trade off. And also the reason why some people appoint two trustees, perhaps one family member and a trust company, to administer the trust. Although I must confess that I don't know exactly how it would play out if the trustees differed in their opinion as to whether or not to make a payment out of trust.