When estate planning for a family member with a disability, terms like Trust, Henson Trust, Qualified Disability Trust, Lifetime Benefit Trust, Bare Trust, and Standard Trust are used frequently, but what do they actually mean? Understanding these distinctions can be the difference between safeguarding a loved one’s access to government benefits and accidentally disqualifying them.
What is a trust?
A Trust is a legal arrangement where one person (the settlor) gives another person (the trustee) the authority to hold and manage assets for the benefit of a third person (the beneficiary). In the context of disability planning, trusts are essential because they separate legal title from beneficial interest. This separation allows a loved one to benefit from assets inside the trust such as money, investments, or property without technically owning them, which is often the key to maintaining provincial government supports such as ODSP (Ontario Disability Support Program).
Henson Trust aka Absolute Discretionary Trust
In a Henson Trust, the trustee has absolute discretion to dictate if, when, and how money inside the trust is spent. Because the beneficiary has no legal right to demand a payment from the trust, it is not considered an asset with respect to provincial disability programs. The beneficiary maintains their eligibility for disability payments, while the trustee retains the authority to provide financial support whenever they see fit.
Qualified Disability Trust (QDT)
While a Henson Trust is focused on protection of provincial disability supports, the Qualified Disability Trust (QDT) is focused on taxation. Trusts in Canada are typically taxed at the highest marginal rate. However, a QDT is a special designation under the Income Tax Act that allows a trust to be taxed at graduated tax rates. To qualify, the trust must be a testamentary trust that is created upon death, the beneficiary must be eligible for the Disability Tax Credit (DTC), and the estate (or estate trustee) and beneficiary must make a joint election with the CRA. A trust can be both a Henson Trust and a QDT.
Lifetime Benefit Trust (LBT)
Used specifically for moving assets from a deceased parents Registered Retirement Savings Plan (RRSP)/Registered Retirement Income Fund (RRIF) into a trust for a mentally infirm spouse, child, or grandchild. The LBT allows the funds to be rolled over tax-deferred to purchase an annuity for the beneficiary. It is a powerful tool as it allows for tax deferral of a large retirement account and is an exempt asset with regards to provincial disability supports. Unfortunately, a LBT typically requires that only the beneficiary is entitled to the income or capital from the trust, which means it can be classified as a non-discretionary trust according to ODSP and have a strict $100,000 lifetime limit. Exceeding this limit may accidentally disqualify the beneficiary ODSP support payments.
Bare Trust
A Bare Trust is the simplest form of a trust where the trustee holds legal title to property, but they have absolutely no independent power or discretion and must act solely on the instructions of the beneficiary. As of 2026, bare trusts face stricter filing obligations, meaning trustees are required to file an annual T3 Trust return. Because a bare trust offers no protection against ODSP asset limits, it is considered suboptimal for disabled beneficiaries.
Standard Trust
A Standard Trust is either a traditional inter vivos (while alive) or testamentary (upon death) Trust that lacks the specific Henson language, or the QDT status. In this Trust, the beneficiary typically possesses a right to receive income at certain points of their life (usually age). Because the beneficiary has a legal claim to the funds, the government views the Trust’s assets as property of the beneficiary which puts them at risk of being disqualified from provincial disability support if the funds exceed certain asset thresholds.
What is the 21 year rule?
Every 21 years all assets within a Trust are deemed to be disposed (that is, sold) at fair market value (FMV), which triggers capital gains tax on any growth. This rule is intended to prevent a trust from deferring taxation of capital gains indefinitely. The does not mean the trust has to be closed.
Check out the QDT vs Standard Trust Calculator