Creating a Henson Trust protects your disabled child’s inheritance without disqualifying them from provincial disability benefits. Because the trustee has absolute discretion over the funds, the money does not technically belong to the child. A lawyer generally charges $1,500 to $3,500 CAD to set up this complex trust.
Leaving a sizable inheritance to a child with special needs requires extremely careful planning. Knowing what to do to protect an inheritance for a disabled child with a Henson Trust in New Brunswick is vital for their long-term security. 💓 If a person receiving provincial government assistance suddenly inherits a large lump sum of money, they can be immediately disqualified from their monthly disability income, subsidized housing, and vital medical benefits.
A Henson Trust, named after a famous Canadian court case, is the premier legal solution to this problem. It is a completely discretionary trust. This means the person managing the money (the trustee) has total control over when, how, and if the money is distributed. Because the disabled beneficiary cannot demand the funds, the provincial government does not count the trust as the beneficiary’s personal asset. Whether you reside in Moncton, Fredericton, or Saint John, this legal tool is essential for protecting vulnerable family members.
Step-by-Step Process in New Brunswick
Setting up a Henson Trust is not a DIY project. The language used in the document must be exact, otherwise, the provincial government may challenge the trust and strip your child of their benefits. Here is how families in New Brunswick typically establish these protections.
Step 1: Selecting the Right Trustee
The most crucial part of a Henson Trust is choosing the person or institution who will manage the money. 👤 This trustee will have absolute authority over the funds for the rest of your child’s life. You must choose someone highly trustworthy, financially responsible, and deeply understanding of your child’s daily needs. Many parents choose a trusted sibling, while others hire a professional corporate trustee or law firm to manage the assets objectively.
Step 2: Drafting the Discretionary Trust with a Lawyer
You must retain an experienced estate planning lawyer to draft the trust documents. The lawyer will ensure the wording strictly explicitly states that the beneficiary has no legal right to claim the funds. The trust can be set up “inter vivos” (while you are still alive) or as a “testamentary trust” which is built directly into your will and only activates upon your passing.
Step 3: Funding the Henson Trust
A trust is useless without assets. Once the legal framework is established, you need to designate how it will be funded. 💰 You can funnel money into the trust through your will, or you can name the Henson Trust as the direct beneficiary of your life insurance policies or Registered Retirement Savings Plans (RRSPs). This ensures the money bypasses the child’s personal bank account entirely and flows straight into the protective trust.
How Much Does it Cost in New Brunswick?
Protecting a vulnerable loved one requires highly specialized legal expertise. Standard will templates are not sufficient. Below is an overview of the costs associated with establishing and maintaining a Henson Trust:
| Service / Requirement | Average Estimated Cost (CAD) |
|---|---|
| Lawyer Drafting Fees (Testamentary Trust) | $1,500 – $3,500 |
| Lawyer Drafting Fees (Living Trust) | $2,500 – $5,000+ |
| Professional Trustee Fees (Annual) | 1% to 2.5% of total trust assets |
| Annual Tax Return Preparation (Accountant) | $400 – $800 annually |
While these professional fees represent an investment, they are heavily outweighed by the value of preserving your child’s provincial disability benefits and ensuring their long-term quality of life.
How Long Does the Process Take?
The timeline for drafting the legal documents is fairly standard. ⏱ A qualified estate lawyer can usually prepare the Henson Trust documents within 3 to 6 weeks of your initial consultation. However, the trust itself is designed to last for decades, actively protecting the inheritance and providing supplementary care for the entire lifetime of your disabled child.
Frequently Asked Questions (FAQ)
Does New Brunswick legally recognize Henson Trusts?
Yes. The Department of Social Development in New Brunswick fully recognizes properly drafted Henson Trusts. As long as the trust is purely discretionary, the capital inside the trust is entirely exempt when calculating a person’s eligibility for provincial disability assistance.
Can the trust be used to buy a house for my child?
Absolutely. The trustee can use trust funds to purchase a home or condominium for the beneficiary to live in. The property is usually owned by the trust itself, which prevents it from being assessed as a personal asset of the disabled individual.
Who pays the income taxes on a Henson Trust?
Trusts are treated as separate taxpayers by the Canada Revenue Agency (CRA). The trust itself must file an annual tax return. If the income is retained in the trust, the trust pays the tax. If the income is distributed to the beneficiary, it is usually taxed in the hands of the beneficiary, often at a much lower marginal rate.
Should I also open an RDSP?
Yes, a Registered Disability Savings Plan (RDSP) is an excellent complementary tool. A Henson Trust and an RDSP work very well together. Trustees frequently use funds from the Henson Trust to make annual contributions to the RDSP, maximizing government matching grants.
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