Feb 27, 2020
The Henson Trust
Rob:
Hey folks! Today we're talking about the Henson Trust and what you need to know, especially if you have a disabled child and you want to protect some of that wealth for them. I'm Rob Tétrault from robtetrault.com, head of the Tétrault Wealth Advisory Group here at Canaccord Genuity Wealth Management. I'm joined today by Adam Buss. Adam is a Wealth and Estate Planning Specialist here at Canaccord Genuity. He's been on the show a bunch of times here and we're happy to have him today as well. Let's talk about the Henson Trust. First of all, where does the name originate?
Adam:
The name Henson Trust originates from a precedent that was created from an Ontario court case. I'm assuming the Henson family, that won their case. That's kind of where it came from. Essentially, it's a fancy name or an easy to know name for a disability trust.
Rob:
Tell me why they can be useful and how you would see it used in planning.
Adam:
It's certainly a big advantage. You should use a Henson Trust when, let's say a parent has a disabled child they want to leave money to, but that person's maybe not able to manage their own financial affairs or they're worried that a lump sum of cash might take away that person's disability benefits that they're getting from the government. A Henson Trust is a fully discretionary trust. the parents still need to name a trustee. Now this would be a trust that originates from a will. It would be a testamentary trust.
Rob:
Not an inter vivos trust. For those of you who didn't know, I was called to the bar. I'm a lawyer actually with my previous career, so I used to dabble in some of this stuff. But anyways Adam, you were saying…
Adam:
I was saying, it does come down to parents who want to leave money, but they're worried that the government benefits are going to get taken away, or the child can't manage their financial affairs properly. Henson Trust allows all the income to be generated within that trust to be sheltered so it doesn't affect their government benefits going forward. It also means that somebody else is in charge of managing those dollars so that they're well maintained going forward.
Rob:
Okay, I have a disabled child and I pass away, for example, and in my will I leave, I set up a trust. I name any trustees I want. I can name my brother or siblings or aunts and uncles, whoever you trust it to kind of look after that pot of money going forward. They then have full discretion as to how and when to pay this sum to the beneficiary. And I assume there can only be one beneficiary for Henson Trust.
Adam:
It would only be the one individual who qualifies for it through the disability.
Rob:
Okay, now there's a fully discretionary trust. Money is pulled out from time to time, the income that's earned, that can be invested, the cash itself that can be invested.
Adam:
That can be invested. Again, it comes down to the investment powers assigned to the trust as a whole, but it would be, invested in a portfolio to generate income, but all that income being generated does not have to be paid to the beneficiary or taxed to that beneficiary on a go forward basis.
Rob:
And the trust itself, I understand one of the large advantages is the graduated tax rate of the trust,
Adam:
Yeah, most testamentary trusts have to be taxed at the highest marginal tax rate. But in this case, it gets to be taxed at the normal graduated tax rate as if it was the individual earning the income directly.
Rob:
A trust is effectively its own legal entity and its own personal tax rate. If the trust makes you know, $10,000 or $20,000 of income that year, it will be treated as $10,000 or $20,000 of income. Not $10,000 or $20,000 plus your income that you're generating outside. You would in theory pay very little tax on that. It is more efficient that way. And then the beneficiaries as well. Now let's talk about setting up an alternative beneficiary for a Henson Trust.
Adam:
Yes, let's say parents have three different kids. One of them has a disability. They want that individual with the disability to be looked after, but they want the money to flow to their other kids. If that person passes away, they can name alternate beneficiaries, saying if the child, the one with the disability passes away, the money can flow to the other two kids without having to go through other estates along the way.
Rob:
That's a neat tool, you get the full benefit of a marginal tax rate. You get to create the trust on death. It's a fully discretionary trust and you also have the advantage of not having the income impact your other benefits that you might be getting from the government.
Adam:
Correct. A huge advantage when it comes to that and often things that we see, maybe overlooked or not properly addressed when we look at estate planning for those families that have somebody who has a disability within it. Check out the videos on disability tax credit, registered disability savings plan, all of those different things we want to look at when we're planning for those with a disability.
Rob:
Yeah, this is a critical piece of estate planning tool. If you have a child with a qualified disability, this is something you should absolutely, unequivocally consider. Meet with your accountant, meet with your lawyer, meet with a group like us, your advisor, because what's really neat about these trusts is they can be invested, they can be invested with a longer term horizon. And it's really part of a holistic estate plan, especially if you have a child with a disability. Okay, folks. If this interests you, and you'd like to chat a bit more, go to speaktorob.com. We would love to set up a no obligation consultation.