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Henson Trusts

Why do I need a Henson trust?

Kenneth C. Pope, Barrister and Solicitor, started his practice in 1980 and travels province wide to meet with clients and present seminars on Disabilities and Estate Planning issues.

Ken is a Henson Trust specialist, providing financial security for families with a family member with disabilities or special needs. 

A Henson Trust Protects Your Family and you’re Estate

If a family member with special needs is receiving Ontario disability support benefits, and if they are left an inheritance, that inheritance is considered an asset and will disqualify them from benefits unless special arrangements are made in the parents’ Will.

The only real solution to this inequity is a HENSON TRUST, created by the parents’ Will. Only available since 1989, when the case after which it is named was upheld by the Ontario Court of Appeal, it places estate assets in the care and control of a Trustee to be administered for the benefit of a beneficiary. Inheritances placed in a properly prepared Absolute Discretionary Trust are not the asset of the child and will not affect provincial benefits.

Many families have members who require assistance in handling their daily affairs, regardless of their other abilities. Special Beneficiaries often benefit from guidance in handling large sums of money or significant assets, temporarily or on an on-going basis. Some beneficiaries may be unable or unwilling to seek guidance, and may at some point be left without care unless special provisions are put into place.

To solve these problems a Henson Trust must be created, during your lifetime (inter vivos) or according to the terms of your Will (testamentary). These Trusts are invaluable in planning for your child’s care when you are no longer there.

These special arrangements are necessary to properly ensure that loved ones will be given the extra care they deserve, and that inheritances will not be wasted. Specialized legal counsel is necessary to ensure that the drafting of Wills follows the court-tested arrangements required, and to continually consider any changes in provincial regulations and new case law.

Disability Tax Credit

In my experience, when I have asked parents of children with cognitive and developmental disabilities (which clearly qualified them for the disability tax credit) if they had applied for the credits, 45% answered “no” or “unsure” to this question! The realm of tax credits is one huge area that is often overlooked in terms of helping clients lower their payable income tax, as discussed below in greater detail. In addition to lowering taxes, qualifying for tax credits can also be a requirement for applying for other money-saving vehicles such as the Registered Disability Savings Plan.  

To qualify, a person must have a severe and prolonged impairment (expected to last at least 12 months).

The filing process can be onerous, because it requires the involvement of a medical professional and there is sometimes disconnect between how physicians complete forms and how the CRA civil servants process applications at the various centers across the country. For this reason I offer this service of back filing for the Disability tax credit. 

Below are the most common questions I hear about the credit.

What is the disability amount?

The disability amount is an non-refundable tax credit that reduces the amount of income tax people with disabilities, or people supporting them, may have to pay.

Who can claim the disability amount?

If you qualify, you, as a person with a disability, can claim the disability amount on your return. Your spouse or another supporting person may be able to claim the part of the amount that you do not need to use to reduce your federal income tax to zero.

If you or anyone else paid for an attendant or for care in a nursing home or other institution because of your impairment, it may be more beneficial to claim the amounts paid as medical expenses instead of the disability amount. In some circumstances, both amounts may be claimed. Claiming the disability amount for yourself. You should use Form T2201, Disability Tax Credit Certificate, to claim the disability amount. If you were allowed the disability amount last year, and you still meet the eligibility requirements this year, you can claim the amount this year without sending another Form T2201.

Transferring the unused part of the disability amount. You, as a person with disabilities, may not need all of the disability amount to reduce your federal income tax to zero. In that case, your spouse or supporting person may be able to claim the unused part of the amount. Generally, a supporting person has to be related to the person with disabilities by blood, marriage, or adoption. For this purpose, you will be considered to be a supporting person related to a person with disabilities if that person is any of the following:

  1. Completely dependent on you for support now and you have custody and control of the person with disabilities or did have custody and control of the person immediately before that person turned 19 years of age. 
  2. Your natural or adopted child
  3. Your spouse's child
  4. Your child's spouse

More than one supporting person may make a claim for the same dependant. However, the total amount claimed by all supporting persons for that dependant cannot be more than the unused part of the amount.

Benefits of Being Approved for the Disability Tax Credit

Not only will you receive the initial lump sum of money for retroactively filing for the Disability Tax Credit (DTC) but you will also be able to claim an additional amount in excess of $1,600, every following year. Qualifying for the disability tax credit is not only about the disability amount you can claim either. Qualifying for the disability tax credit opens up a variety of benefits that many people are unaware of, such as:

Caregiver Tax Credit

Line 315, the caregiver amount, comes into effect when there is a person, older that 18 years of age, who resides with you at some point during the year, and is dependant on you, due to mental or physical infirmity.   The dependant needs to have income of less than $14,000.00 per year for you to receive the maximum tax credit.  As well, the person must be your child or grandchild or you or your spouse or your common-law partner’s brother, sister, niece, nephew, aunt, uncle, parent, or grandparent. 

If the person was with you any time during the year, you are eligible for the amount. The eligibility for the caregiver amount is effected by the dependant’s net income and conflicts with the use of line 306. Only one of these lines can be used and in most family situations , line 306 gives no real benefit. If a child over 18 receives Ontario Disability Support Program payments or a senior gets the Guaranteed Income Supplement, the persons modest income will not erode the tax credit used by the caregiver, but the same modest income will completely erode the line 306 tax credit.

You Can Claim for 10 Previous Years

What the booklet does not tell you is that, if you failed to apply for the caregiver amount, you may backfile, going back as far as 10 prior years, presuming the person with disabilities was over 18 for all of those years. With the taxation system as complicated as it is, it is good to know that you have another kick at the can. It doesn’t have to be Tax time....any time is the time to revise past omissions or errors. Using line 315 should put about $600 a year in your pocket. 

 

Additional Supplements for Eligible Minors

If you have child under 18, who is qualified for the Disability Tax Credit, then depending on your family net income* you can expect a sizeable increase in your Canada Child Tax Benefit ("CCTB") because of the Child Disability Benefit. For those who qualify, it's a tax free benefit of up to $2,455 a year ($204.58 a month).

Registered Disability Savings Plan (RDSP)

Being approved for the DTC also allows an individual the ability to setup a Registered Disability Savings Plan (RDSP). This RDSP is a great investment tool for people with disabilities for a number of reasons. Depending on your net family income the government is willing to match contributions made to the plan. 

Canada Revenue Agency's RDSP 

Canada Revenue Agency's information on the Child Disability Benefit (CDB)


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