INVESTOR INSIGHTS

2026

Financial Planning for a Child With a Disability: How a Henson Trust Can Protect Your Child’s Future

The most important inheritance may be the one your child never owns.

Every parent of a child with a disability eventually confronts the same question: who will look after my child when I no longer can? It is one of the most difficult questions in financial planning, because it forces families to think beyond their own lifetime.

Most parents begin with the same instinctive answer: leave lots of money behind in the form of an inheritance. The logic seems obvious, almost foolproof. If you are worried about your child’s future, a larger inheritance should create greater financial security.

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Surprisingly, that is not always true. For many Canadians receiving disability benefits, an inheritance can create an unintended problem. Assets received directly may reduce or eliminate access to government programs that provide valuable ongoing support. In other words, an inheritance intended to help your child can end up turning off government benefits they were already receiving.

That is why estate planning for a child with a disability requires a different approach. With proper planning, it is often possible to provide meaningful financial security while preserving access to government support programs, and one of the most widely used tools available to Canadian families is known as a Henson Trust.

Despite the technical name, the concept is surprisingly simple. A Henson Trust allows parents to leave assets for the benefit of a child without transferring direct ownership of those assets to the child. Because the beneficiary does not control the assets, disability programs often do not treat the trust’s capital as belonging to them. The result can be a structure that serves both goals: government benefits remain in place, while family wealth is available to help support the beneficiary throughout their lifetime. That distinction is life changing.

When an Inheritance Creates a Problem

Consider a simple example. Assume a parent passes away and leaves an adult child with a disability an inheritance of $300,000. Most parents would view that inheritance as an act of financial protection. However, a beneficiary receiving disability support benefits may be subject to asset limits, and receiving assets directly could reduce eligibility for those benefits or eliminate them entirely. Instead of supplementing government support, the inheritance replaces it.

The issue is not the money. The issue is how the money is left, and that is precisely the problem a Henson Trust was designed to solve.

A Uniquely Canadian Solution

The Henson Trust traces its origins to Ontario in the early 1980s. Leonard Henson, a father from Guelph, wanted to ensure that his daughter Audrey, who had a developmental disability, would remain financially secure after his death. Like many parents today, he faced a difficult dilemma: how do you leave money to a child with a disability without jeopardizing the government assistance they depend on?

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His solution was both simple and innovative. Rather than leaving assets directly to Audrey, he left them to trustees and granted those trustees complete discretion over how the money would be used. Audrey could benefit from the trust, but she could not control it. She could not demand distributions, she could not force the trust to be wound up, and she did not legally own the assets.

When the province attempted to treat the trust as her asset, the family challenged the decision and ultimately prevailed in court. The courts concluded that a beneficiary cannot own property they have no legal right to demand. That principle became the foundation of what we now know as a Henson Trust, and roughly four decades later it remains one of the most widely used estate planning tools available to families caring for a child with a disability.

How a Henson Trust Works

At its core, a Henson Trust separates ownership from benefit. The trustee controls and manages the assets, and the beneficiary receives the benefit of those assets without controlling them. That distinction is critical, and a properly structured Henson Trust generally secures it through two key features.

1. The Trustee Has Complete Discretion

The trustee decides whether money should be distributed, when it should be distributed and how much should be distributed. The beneficiary cannot demand income or capital. In fact, the trustee could legally decide not to make a distribution at all. While that may sound harsh, it is precisely what allows the trust to function as intended.

2. The Beneficiary Cannot Collapse the Trust

In many trusts, beneficiaries who are entitled to the assets can terminate the trust and take ownership of the property. A Henson Trust prevents this. Typically, the trust names other individuals or charities to receive any remaining assets when the beneficiary dies, which lawyers refer to as a "gift over."

Without these two features, the trust may fail to achieve its intended result. Get them right, and the trust can provide financial support for decades while helping preserve benefit eligibility.

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Why Courts Matter

Many families find the legal history of Henson Trusts intimidating, but only one lesson truly matters. The courts have repeatedly recognized that a beneficiary’s ability to benefit from assets is not the same thing as owning them, and that distinction is why Henson Trusts work.

The legal precedents are important because they support the structure, not because parents need to understand every court decision. Families do not establish Henson Trusts because they are interested in legal history. They establish them because they want to protect their child.

What the Provincial Rules Actually Say

Although Henson Trusts are widely recognized across Canada, disability support programs are administered provincially, which means the treatment of trusts can vary.

In Ontario, a properly structured Henson Trust generally allows trust assets to remain outside the beneficiary’s countable asset limit under ODSP, and the trust itself may hold substantial assets. However, payments made from the trust can affect benefits, depending on how those payments are structured and what they are used for. Alberta has historically taken a different approach, although legislative changes have significantly improved the treatment of trusts within the AISH framework.

The underlying principle remains largely consistent across jurisdictions. What is inside the trust is often protected; what comes out of the trust is what government programs pay attention to. That is one reason trustee selection is so important.

How a Henson Trust Is Taxed

Under Canadian tax law, a Trust is treated like a separate taxpayer and income is typically taxed at the highest marginal rate. However, a testamentary Henson Trust may qualify as a Qualified Disability Trust, which then gives it access to the same graduated tax brackets available to individuals. Over a beneficiary’s lifetime, that difference can preserve a meaningful amount of wealth. The conditions matter: the beneficiary must qualify for the Disability Tax Credit, the trust and the beneficiary must make a joint election every year, and a beneficiary can make that election with only one trust at a time.

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Families should also understand two other tax considerations. First, capital gains are generally taxed when investments are sold. Second, Canadian tax law applies a deemed disposition every 21 years, meaning the trust is treated as though it sold its assets at market value even if nothing is actually sold. For a trust expected to last decades, planning for that future tax event is essential.

The Other Tool Most Families Need: The RDSP

Many families assume they must choose between a Henson Trust and a Registered Disability Savings Plan (RDSP). In reality, they often work well together. Think of the RDSP as the engine and the Henson Trust as the fuel tank. The RDSP provides government grants, bonds and valuable tax advantages, while the Henson Trust provides flexibility, control and no limit on how much it can hold. Together, they create a powerful long term planning structure.

For beneficiaries who qualify for the Disability Tax Credit, the federal government may contribute significant grant and bond funding to an RDSP over time. Those payments have annual and lifetime limits, stop at the end of the year the beneficiary turns 49, and can be clawed back if money is withdrawn too soon after they are received. The account is generally exempt from provincial asset testing and can play a critical role in long term financial security. It also creates important opportunities for RRSP and RRIF rollover planning when a parent dies.

One structure provides tax efficiency; the other provides flexibility. Together, they can help create a sustainable financial plan designed to support the beneficiary for decades.

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The Most Important Decision: Choosing the Trustee

Most discussions about Henson Trusts focus on legal documents. In practice, the trustee often matters more than the trust itself. The trustee may be responsible for investment decisions, tax filings, record keeping, benefit coordination and spending decisions for many years, and in some cases for decades.

When selecting trustees, a few principles are worth considering. Appoint more than one trustee, and name successors in case your first choices are no longer able to serve. Separate responsibilities where it makes sense, so that each person does the part they are suited to. Leave a detailed letter of wishes to guide how the trustees use their discretion. Above all, choose people who understand both the financial responsibilities and your child’s personal needs. A trust can only be as effective as the people managing it.

The Bottom Line

At first glance, a Henson Trust appears to be a legal document. In reality, it is something far more personal. It represents a parent’s attempt to answer one of life’s most difficult questions: how do I continue caring for my child when I am no longer here to do it myself?

A properly structured Henson Trust cannot replace family, community or support networks. What it can do is help preserve access to government benefits, help protect inherited assets and give future trustees the flexibility to improve a beneficiary’s quality of life for decades to come.

The goal is not simply to leave money behind. The goal is to leave security behind, and for families with a child who has a disability, that distinction may be one of the most important financial planning decisions they ever make.

Book a complimentary 60-minute introductory meeting, by Zoom or in person, at www.frontwater.ca.

Frequently Asked Questions

What is a Henson trust? It is an absolute discretionary trust for a person with a disability. The trustee decides whether and when to pay anything, and the beneficiary cannot demand payment or end the trust. Because of that, most provincial programs do not count the trust’s capital as the beneficiary’s asset.

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Is there a limit on how much can go into a Henson trust? No. Programs such as ODSP may limit what can be paid out without affecting benefits, but not what the trust can hold.

Is a Henson trust the same as an RDSP? No. An RDSP is a registered federal savings account in the beneficiary’s own name, with government grants and a $200,000 lifetime contribution limit. A Henson trust is a private trust with no size limit, controlled by trustees. Many families use both.

How is a Henson trust taxed? A trust created in a will can be taxed at graduated rates if it elects each year, jointly with a beneficiary who is eligible for the Disability Tax Credit, to be a Qualified Disability Trust. Otherwise, income kept in the trust is generally taxed at the top rate. Capital gains are taxed when assets are sold, and all capital property is deemed sold every 21 years.

What happens to the money when the beneficiary dies? It passes to the people or charities named in the trust, often siblings. That gift over is part of what makes the trust work.