A key strength of a Henson Trust is the exemption from Ontario Disability Support Program (ODSP) asset thresholds. Unlike typical trusts that limit assets to $100,000, a Henson Trust can hold unlimited funds while fully protecting the beneficiary’s provincial benefits. However, while it is powerful tool for protecting a beneficiary’s long term financial goals, the drawback is that it must be established in the will of the person who has passed on. This means that if a beneficiary inherits money directly, that money cannot be retroactively moved into a Henson Trust to comply with provincial disability asset restrictions.
However, if a beneficiary finds themselves in a situation where they receive a standard inheritance (not in a Henson Trust), there are options to protect themselves. In order to continue receiving provincial disability benefits, they would have to move that money into one or more exempt asset(s) within a certain time period.
Option 1: RDSP
ODSP rules allow an unlimited amount of money in an Registered Disability Savings Plan (RDSP), and some or all of the inheritance can be moved into this account. There is, however, a lifetime personal contribution limit of $200,000.
Option 2: Trust Fund
ODSP 4.7 has an exception for Trusts provided the money originated from an inheritance or a life insurance policy. The total benefit of the trust cannot exceed $100,000, and the beneficiary has a 6 month grace period to move the money to maintain compliance.
Option 3: Life Insurance Policy
ODSP 4.8 allows life insurance policies with a $100,000 cash surrender value as an exempt asset. Dividends may be reinvested back into the policy provided the total is below the limit. As with trust funds, the beneficiary has a 6 month window to purchase the exempt asset in accordance with ODSP rules.