You Can Use Discretionary Trusts In Your Will for Those Who Cannot Handle Money or Have Special Needs

Some beneficiaries can’t handle their inheritance because of disability, financial recklessness, divorce or bankruptcy. If they are receiving government disability payments, their entitlement to benefits may be based on income tests. They may lose benefits if their income exceeds certain levels. These programs can provide housing, income, medical benefits and other assistance.

Consider discretionary trusts for these beneficiaries. Here’s how they work.

Gifts in your will can be given to your trustee (who could also be your executor). This trust gift could be one-third of your estate or $200,000. This gift is not given to your beneficiary but to your trustee(s). Your trustee decides, in their discretion, what limited distribution to make to your beneficiary. This can maximize beneficiaries’ other allowable benefits until a person reaches a certain age. Note, these discretionary trusts should be prepared with legal advisors.

Find more information at Ontario Disability Support Program.

Property put into trust never becomes the property of the special needs beneficiary. Your beneficiary cannot demand or control trust assets. Your trustee controls all distributions from the trust of income earned and capital. The trustee has absolute discretion over how much or how little income or capital is given to the special needs beneficiary.

Your beneficiary benefits as the estate trustee controls and manages assets in trust.

Henson Trusts: Jack’s Story

Jack created a discretionary trust, called a Henson trust, in his will for his special-needs daughter, Helen. Jack appoints his son, Michael, to handle the $100,000 in this Henson Trust. Helen receives government assistance based on her income. She has limitations on what she can receive as income or gifts. Helen’s brother, Michael, decides when and if Helen receives any benefits. He can use his discretion to benefit Helen or her children, if Helen has any.

Helen cannot compel Michael to make any payments to her. If Helen dies, what’s left of the trust fund can go to Helen’s children or a charity. Helen did not inherit anything and she could not lose any benefits.

Do you need help deciding if a discretionary trust is right for your will? Contact me today. We can meet to discuss your needs. I look forward to helping you.

Estate law is all I do.

Ed Olkovich, Certified by the Law Society of Ontario as a Specialist in Estates & Trusts Law