Henson Trusts and Estate Planning for a Family Member on ODSP in Ontario

If you’re supporting an adult with a developmental disability in Ontario, few questions weigh heavier than “what happens to them when I’m gone?” The instinct to simply leave them money can, sadly, do real harm — a direct inheritance can suspend the Ontario Disability Support Program (ODSP) and the drug and dental coverage that comes with it. This guide walks through the tools families use to provide for a loved one without putting their benefits at risk: the Henson trust, the $100,000 inheritance trust, the Qualified Disability Trust, RRSP/RRIF rollovers into an RDSP, and life insurance — in plain language, with every figure sourced and dated. For the wider picture of planning for the future, see Future & Succession Planning in Ontario: A Guide for Aging Parents of an Adult with a Developmental Disability.

This is general information, not legal or financial advice. ODSP rules and tax law are complex, fact-specific, and change over time. Any family planning to leave money or property to a relative who receives (or may someday need) ODSP should retain a qualified Ontario estate lawyer experienced with disability trusts, and coordinate with a tax accountant. Nothing below should be relied on to draft a will or trust.

The short version

• Never leave money directly to a relative on ODSP. A direct inheritance is counted as both income in the month it’s received and then as an asset. Because ODSP’s asset limit for a single recipient is $40,000 (ODSP Income Support Directive 4.1), even a modest inheritance can suspend income support and — more painfully — the drug and dental benefits that come with it.
• The core tool is a Henson trust (an absolute discretionary trust). Because the trustee has absolute and unfettered discretion, the beneficiary has no right to demand anything, so the trust capital is not counted as an asset regardless of value (ODSP Directive 4.7). It has to be created for the person by someone else — usually through a parent’s will — not set up by the person themselves.
• Know the two dollar limits. A Henson trust has no cap. A separate exemption lets a person shelter up to $100,000 of inheritance or life-insurance proceeds in a trust “available for maintenance” (combined with any life-insurance cash surrender value). Payments out of that trust are limited to $10,000 per 12 months for any purpose, plus unlimited amounts for approved disability-related items.
• Layer the tax and savings tools. A properly drafted testamentary Henson trust can also elect to be a Qualified Disability Trust (QDT) for graduated tax rates, and RRSP/RRIF proceeds can roll tax-deferred into the disabled child’s RDSP (Registered Disability Savings Plan). Life insurance is often the vehicle families use to fund the trust. See The Disability Tax Credit (DTC) and RDSP in Ontario: A Plain-Language Guide for Families for how the DTC and RDSP work.
• Get it drafted by a specialist and coordinate everything. The wrong trustee, a DIY or template will, and stray beneficiary designations (life insurance, RRSP, or TFSA naming the person directly) are the classic, costly mistakes that quietly defeat the whole plan.

What every family should know

1. The problem is structural, not a matter of amount. ODSP is means-tested. Leaving assets to the person directly pushes them over the asset ceiling; the real damage is losing the linked health, drug, and dental benefits, which can cost far more than the inheritance is worth.
2. The Henson trust solves it by removing the beneficiary’s control. Ontario case law (the Henson case, affirmed 1989) and the Supreme Court of Canada (S.A. v. Metro Vancouver Housing Corp., 2019) confirm that the beneficiary of a fully discretionary trust has no vested interest. As Justice Côté wrote for the majority (2019 SCC 4, para 39), the beneficiary’s interest is “akin to a mere hope that some or all of its property will be distributed to her at some point in the future” — so the trust is not their asset.
3. ODSP itself recognizes this in writing. Directive 4.7 expressly states that “a true absolute discretionary trust is not considered an asset for ODSP purposes, therefore the capital value of such a trust can be in excess of $100,000.”
4. The tools stack. A Henson trust (asset protection) + a QDT election (tax) + an RDSP rollover (tax-deferred registered savings) + life insurance (funding) form a single coordinated plan. Each has strict conditions.
5. Execution is everything. These trusts fail when they’re drafted with generic wording, funded by accident (through beneficiary designations that bypass the trust), or run by an unsuitable trustee.

Why ordinary estate planning backfires

ODSP provides income support plus valuable health, drug, and dental benefits to Ontario adults with disabilities who meet both a medical and a financial test. The financial test is strict: a single recipient may hold no more than $40,000 in non-exempt assets ($50,000 for a couple, plus $500 per dependant other than a spouse) — figures in force since September 1, 2017 and confirmed in ODSP Income Support Directive 4.1. (The asset limits and their exemptions are covered fully in the ODSP in Ontario: A Plain-Language Guide for Families; here we simply note the limit and move on.)

When someone leaves money outright to a person on ODSP, two things happen. First, the inheritance is treated as income in the month it is received, which can zero out that month’s cheque. Second, whatever remains becomes a countable asset the following month, and if total assets exceed $40,000 the person becomes ineligible until they “spend down” below the limit. The greatest harm is usually not the loss of the modest monthly income — it’s the loss of the accompanying drug and dental coverage, the cost of which can quickly exhaust a modest inheritance. As the Toronto-area disability firm PooranLaw explains, a properly structured Henson trust “renders the property invisible to ODSP for as long as the property remains in the Trust,” whereas giving the beneficiary a right to payments “would give the Beneficiary a claim to assets that may be included for the purposes of determining eligibility for ODSP.” This is why this population needs fundamentally different planning: the goal is to benefit the person without putting assets — or a right to assets — into their hands.

The Henson trust (absolute discretionary trust)

What it is. A Henson trust is a fully discretionary trust in which the trustee has “absolute and unfettered discretion” over whether, when, and how much to pay the beneficiary. The beneficiary cannot compel a payment and cannot collapse the trust. Because of this, the beneficiary has no vested legal interest — the assets do not belong to them — and so the trust’s capital is not counted against ODSP asset or income limits.

Ontario origins — the Henson case. The trust is named after Leonard Henson of Guelph, Ontario. In the early 1980s, Leonard — a widower with no other family — wanted to provide for his daughter Audrey, who had a developmental disability and lived in a residence associated with the Guelph Association for Community Living, without disqualifying her from the benefits then payable under the Family Benefits Act (the predecessor to ODSP). Working with a Guelph lawyer (George Gates) and community advocates, he placed an absolute discretionary trust in his will, naming the Guelph Association for Community Living as trustee and Audrey as beneficiary, with the residue passing to the Association on her death. After Leonard died, the Ministry of Community and Social Services took the position that Audrey had inherited her father’s estate and terminated her benefits (the Family Benefits Act liquid-asset limit at the time was only about $3,000). The Social Assistance Review Board reversed that decision; the Ministry appealed to the Divisional Court, which dismissed the appeal in 1987, holding that a trust of more than $82,000 created by Leonard’s will for Audrey’s benefit was not an asset owned by her, because the trustees had absolute discretion and she could not compel payment. The Court of Appeal for Ontario affirmed in 1989 (Ontario (Ministry of Community and Social Services, Income Maintenance Branch) v. Henson, (1989) 36 E.T.R. 192). The wording of Audrey’s trust became the template for the tens of thousands of “Henson trusts” drafted since.

Confirmed by the Supreme Court of Canada (2019). In S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4 (released January 25, 2019), the Supreme Court considered a Henson trust for the first time and confirmed its validity as an estate-planning tool. The Court held that a Henson-trust beneficiary has no more than a “mere hope” of receiving anything (para 39), so the trust interest is not an “asset.” The decision clarified the essential requirements: (i) the trustees must have complete, unfettered discretion; (ii) the beneficiary must not be able to unilaterally collapse the trust (typically ensured by a “gift over” to another person or charity on death, which defeats the rule in Saunders v. Vautier); and it noted that a beneficiary may even serve as a co-trustee, so long as they cannot unilaterally direct payments. Importantly, the Court cautioned (per Justice Côté, para 55) that its reasons “should not be taken to suggest that the interest of a person with disabilities in a properly constituted Henson trust can never be treated as an ‘asset’ for any purpose whatsoever” — treatment can vary program by program. (In that case, the housing program’s rental-assistance asset threshold was a $25,000 “soft cap.”)

No cap for ODSP asset purposes. ODSP Income Support Directive 4.7 (“Funds held in trust”) states plainly that “a true absolute discretionary trust is not considered an asset for ODSP purposes, therefore the capital value of such a trust can be in excess of $100,000,” and in its chart lists the capital of a discretionary/Henson trust as “Not considered an asset regardless of the value.” Interest reinvested in the trust is likewise not counted, regardless of value.

Two crucial limits. First, a Henson trust cannot be self-settled — Directive 4.7 says expressly that “members of the benefit unit who receive an inheritance or are entitled to an inheritance cannot create or put that inheritance in an absolute discretionary trust in an attempt to have the trust not considered an asset.” It must be created for them by someone else, typically through a parent’s will. Second, discretion alone is not magic: Directive 4.7 warns that “just because the terms of the trust give the trustees discretion, this does not mean that it is an absolute discretionary trust” — all the terms of the trust and will are read together, which is exactly why specialist drafting matters.

Payments out still have limits. Although the capital is unlimited and protected, money actually paid to or for the beneficiary is treated as income unless it’s exempt. Under Directive 4.7, payments are exempt as income if used for “approved disability related items, services, education or training expenses that are not reimbursable; the purchase of a principal residence or an exempt vehicle; first and last month’s rent necessary to secure accommodation; or any purpose up to $10,000 maximum in a 12 month period” (contributions to an RDSP or RESP are also exempt). Amounts above that, not for an exempt purpose, count as income in the month received. So a Henson trust protects the nest egg, but the trustee still has to manage distributions carefully.

The $100,000 inheritance/life-insurance trust and how it interacts

Separate from the Henson trust, ODSP exempts as an asset up to $100,000 of funds derived from an inheritance or the proceeds of a life-insurance policy that are placed in a trust “available for maintenance” (Directive 4.7 and Directive 4.1). The key features, all from Directive 4.7:

• The $100,000 ceiling is a combined limit: the capital of such a trust plus the cash surrender value of any life-insurance policies owned by a member of the benefit unit must not exceed $100,000.
• Interest can be reinvested tax-free from an ODSP standpoint as long as the trust stays under $100,000; if it grows past the ceiling it can cause a loss of benefits, so lawyers advise leaving room for growth.
• A recipient who receives such funds directly is generally allowed up to six months to place them in trust.
• This exemption is available even where the deceased did not set up a trust — the recipient (if capable, or through a substitute decision-maker) can settle it themselves within the time limit. That’s the key practical difference from a Henson trust, which must be created by someone else.

How they interact. The two tools are complementary. A Henson trust (created in someone else’s will) has no cap and is the primary tool for larger legacies; the $100,000 “inheritance trust” is the fallback when planning wasn’t done in advance and the person receives funds directly. Where an inheritance exceeds $100,000 and no Henson trust exists, families often combine tools — for example, put $100,000 in an inheritance trust, direct funds into an RDSP (lifetime limit $200,000), buy exempt assets, and spend on approved disability-related needs. Note one tax drawback flagged by the Canadian Tax Foundation: a self-settled inheritance trust is not a testamentary trust, so it cannot qualify as a QDT (below).

The Qualified Disability Trust (QDT)

Why it matters. Since January 1, 2016, testamentary trusts are generally taxed at the top marginal rate on all income rather than at graduated rates. A QDT is one of only two exceptions (the other being a graduated rate estate), and it is taxed at the graduated personal rates that apply to individuals — potentially large annual tax savings on income retained in the trust. The definition is in subsection 122(3) of the Income Tax Act.

Requirements (from CRA). Per CRA (“Trust types and codes” and “Graduated Rate Taxation of Trusts and Estates”), for a tax year a QDT must be:

• a testamentary trust that arose on and as a consequence of an individual’s death (an inter vivos or self-settled trust cannot qualify);
• resident in Canada for the year; and
• it must file a joint election (Form T3QDT, “Joint Election for a Trust to be a Qualified Disability Trust”) with one or more beneficiaries in the trust’s T3 return.

Each electing beneficiary must: include their Social Insurance Number on the election; be named as a beneficiary by the deceased in the instrument that created the trust; and be eligible for the Disability Tax Credit (DTC) for the relevant year.

The one-QDT-per-beneficiary rule. CRA is explicit: “no beneficiary who elects with the trust to be a QDT for the year can elect with any other trust for the other trust to be a QDT.” In plain terms, a given disabled person can be the electing beneficiary of only one QDT in a year. This is a real trap where more than one family member (say, both parents, or a parent and a grandparent) each leaves a Henson trust for the same child: only one of those trusts can enjoy graduated rates; the others are taxed at the top rate. Families should coordinate their wills so QDT status lands where it does the most good.

Recovery tax. If a QDT later ceases to qualify — for example, if trust capital is paid to a non-electing beneficiary — a “recovery tax” claws back the earlier benefit of graduated rates. And note the DTC gateway: if the disabled beneficiary is not DTC-eligible, the Henson trust cannot be a QDT and is taxed at the top rate. (DTC and RDSP mechanics are covered in The Disability Tax Credit (DTC) and RDSP in Ontario: A Plain-Language Guide for Families.)

RRSP/RRIF rollovers into an RDSP

Normally, the full value of a deceased person’s RRSP or RRIF is included in income on their final (“terminal”) tax return and taxed at their top marginal rate — unless it passes to a “qualified beneficiary.” A spouse is the usual qualified beneficiary, but the rules also allow a financially dependent child or grandchild to be one.

Rollover to an RDSP. Since 2011 (announced in Budget 2010, effective for deaths on or after March 4, 2010), a deceased annuitant’s RRSP/RRIF proceeds — and certain RPP/PRPP/SPP amounts — can be rolled over on a tax-deferred basis into the RDSP of a financially dependent child or grandchild who has an impairment in physical or mental functions and who is the RDSP beneficiary. Per CRA:

• The rollover cannot exceed the RDSP lifetime contribution limit of $200,000 (reduced by all prior contributions and rollovers).
• The rollover is documented on Form RC4625 (“Rollover to a Registered Disability Savings Plan (RDSP) Under Paragraph 60(m)”).
• No Canada Disability Savings Grant or Bond is paid on rolled-over amounts. Withdrawals are later taxable to the beneficiary but do not affect income-tested disability benefits.
• CRA has confirmed (for example, a June 26, 2020 Technical Interpretation) that the rollover can apply even where the disabled adult child lives in a group home rather than with the parent, provided the facts show genuine, regular, more-than-incidental financial support and the income test is met.

Illustration of the tax stakes. Industry commentary shows the size of the benefit: a $500,000 RRIF left to three adult children (one disabled and financially dependent) would trigger roughly $225,000 of tax at a hypothetical 45% rate if no rollover is used; rolling $200,000 into the disabled child’s RDSP reduces the estate’s tax to about $135,000 — a saving of roughly $90,000.

The financial-dependency income test. CRA presumes a child or grandchild is not financially dependent if their net income in the year before the annuitant’s death exceeded a threshold. For a child whose dependence is due to mental or physical infirmity, the threshold is the maximum (unreduced) basic personal amount plus the disability amount (Guide T4040 and Form T2019). Using CRA’s indexed figures:

• 2025: basic personal amount $16,129 + disability amount $10,138 = threshold of $26,267.
• 2026: basic personal amount $16,452 + disability amount $10,341 = threshold of $26,793.

The presumption is rebuttable — CRA’s Form T2019 states that if net income was more than these amounts, “we will not consider you to be financially dependent on the annuitant at the time of the annuitant’s death unless you can establish that you were” — but income above the threshold shifts the burden to the taxpayer.

Direct rollover to the child’s own RRSP/RRIF. A financially dependent child or grandchild can also, in some cases, transfer proceeds to their own RRSP, RRIF, or eligible annuity. For a person on ODSP this is usually less attractive than the RDSP route, because ordinary RRSP/RRIF assets are not ODSP-exempt (RDSP assets are fully exempt with no maximum, per Directive 4.10) — so the RDSP rollover is generally the tool of choice for a disabled beneficiary.

Life insurance as the funding vehicle

For many families of modest means, life insurance is the practical way to fund a Henson trust — it lets a parent convert small monthly premiums into a guaranteed lump sum available exactly when it’s needed, on death. Insurance proceeds can be directed into a testamentary Henson trust. Two cautions from practitioners:

• Coordinate the beneficiary designation. If the disabled person is named directly as the policy’s beneficiary (or contingent beneficiary), the money lands in their hands and bypasses the trust — recreating the exact ODSP problem the plan was meant to avoid. The trust (or the estate feeding the trust) should be the designated recipient, on the drafting lawyer’s advice.
• Probate vs. QDT trade-off. An insurance trust structured outside the estate can avoid estate administration tax (probate), but the interaction with QDT status requires planning; where insurance proceeds are the bulk of what the beneficiary receives, families often designate the insurance-funded trust as the QDT. This is a point for the lawyer and accountant to optimize together.

Doing it right: the mechanics

• A properly drafted will. The Henson trust is almost always a testamentary trust created in the will (which is also a precondition for QDT status). The will must give trustees absolute and unfettered discretion, deny the beneficiary any power to compel payment or collapse the trust, and include a gift-over (a named remainder beneficiary — a sibling, other relative, or charity) so the trust cannot be unwound under Saunders v. Vautier. Directive 4.7 also notes the will must address distribution on the beneficiary’s death; failing to do so can cause the trust to be treated as the beneficiary’s asset.
• Choosing the trustee. This is arguably the single most important decision. The role can last for the beneficiary’s entire life and involves managing investments, filing annual trust tax returns, making sensitive discretionary decisions, filing ODSP annual trust reports, and coordinating supports. Families frequently appoint more than one trustee (for checks and balances and continuity) and name alternate/successor trustees. Watch the conflict of interest where a sibling is both trustee and residual beneficiary — the trustee then has a financial incentive to hoard capital. A corporate trustee or professional co-trustee can help. The trustee should understand ODSP rules, the RDSP, tax credits, and the person’s needs.
• The letter of wishes. Because absolute discretion is legally essential, parents can’t put binding instructions in the trust without risking the ODSP exemption. Instead they write a letter of wishes — a separate, non-binding document (not referenced in the will and kept with it) that guides the trustee on how the parents would want funds used: living standards, home comforts, travel, therapies, and contacts of supportive family and friends. It isn’t legally binding, but a well-chosen trustee will follow it.
• Coordinate with property decision-making. If the beneficiary cannot manage property or make the QDT election themselves, a substitute decision-maker (for example, under a power of attorney or a court-appointed guardian of property) may be needed — to make the joint QDT election, or to act as the RDSP holder. Legal capacity, guardianship, and supported decision-making are covered in Legal Decision-Making in Ontario: Capacity, Powers of Attorney and Guardianship — A Family Guide; here it’s enough to flag that the trustee and property-decision roles must be coordinated with the trust plan.
• Coordinate all beneficiary designations. Review life insurance, RRSP, RRIF, TFSA, and pension designations so none of them names the disabled person directly and accidentally bypasses the trust.
• Annual reporting. Even though a Henson trust is not an asset, ODSP requires an annual report verifying payments into and out of the trust (authority: s. 5 of the ODSP Act). The trustee has to keep good records.

Where families get stuck

The costliest errors are almost always in the execution, not the concept:

• Naming the person directly in the will (or as a beneficiary). The classic error — an outright bequest, or naming the disabled person on a life-insurance policy, RRSP, TFSA, or pension — delivers assets into their hands and can suspend ODSP and its health benefits.
• DIY and generic/template wills. Online will kits and non-specialist drafting routinely omit the precise discretionary language, the gift-over, and the death-distribution clause. Directive 4.7’s warning that discretion alone is not enough means sloppy wording can cause the trust to be counted as an asset — the worst possible outcome.
• Choosing an unsuitable trustee. A trustee who lacks financial acumen, doesn’t understand ODSP/RDSP rules, lives far away, is likely to predecease the beneficiary, or has a conflict of interest can mismanage the trust or make benefit-destroying distributions.
• Over-distributing. Paying the beneficiary more than the exempt limits (beyond $10,000 per 12 months for non-exempt purposes) needlessly claws back benefits.
• Ignoring tax coordination. Failing to make (or mis-timing) the QDT election — there is no relief for a late election — or setting up duplicate QDTs for the same beneficiary wastes the graduated-rate advantage. Missing the RRSP-to-RDSP rollover leaves a large, avoidable tax bill on death.
• Disinheriting out of fear. Some parents, misunderstanding the rules, cut the disabled child out entirely or leave money informally to a sibling “to look after” them. Once money legally belongs to the sibling it is exposed to that sibling’s creditors, divorce, and death, and is not protected for the disabled person. The Henson trust exists precisely so this over-correction is unnecessary.

Grey areas and points of confusion

• Program-by-program treatment. The 2019 Supreme Court decision expressly limited itself to the housing program before it and warned that a Henson trust interest could still be treated as an “asset” under a differently worded program. For ODSP specifically, the treatment is settled and favourable (Directive 4.7), but other benefits (for example, some rent-geared-to-income housing) may define “asset” differently.
• The 2026 disability-amount figure. The 2025 federal disability amount ($10,138) is stated verbatim on canada.ca; the 2026 figure ($10,341) comes from CRA’s indexation chart as reported by reputable secondary sources (for example, Investment Executive) and should be confirmed against the canada.ca line-31600 page once it is updated for 2026.
• Which basic personal amount applies to the dependency test. CRA’s current T4040/RC4460 wording uses the “unreduced maximum” basic personal amount; older T2019 language said simply “basic personal amount.” The distinction can matter for a higher-income year and should be confirmed with the current CRA guide.
• Evolving trust tax rules. Testamentary-trust taxation changed materially in 2016, and enhanced trust-reporting rules have applied since the 2023 tax year (a QDT is generally exempt from the enhanced reporting). Trust tax rules continue to evolve; families should have the plan reviewed periodically.
• Inflation indexing of ODSP amounts. ODSP income-support rates have been indexed to inflation since July 2025 (most recently a 2.8% increase effective July 1, 2025); the $40,000/$50,000 asset limits and the $100,000 trust ceiling have not changed since 2017 and are not indexed — but families should verify current figures, as these are exactly the kind of thresholds governments adjust. (Current ODSP amounts live in the ODSP in Ontario: A Plain-Language Guide for Families.)

How current is this, and what to double-check

Figures here are current as of research in July 2026: ODSP asset limits ($40,000 single / $50,000 couple) and the $100,000 inheritance/life-insurance trust ceiling are from ODSP Directives 4.1 and 4.7 (Directive 4.7 last updated March 10, 2026); the RDSP lifetime limit is $200,000 (CRA); and the 2025/2026 basic personal and disability amounts are CRA indexed figures. Always confirm dollar thresholds against the primary source before acting, as several are subject to periodic change.

Primary sources (canada.ca/CRA for tax and RDSP rules; ontario.ca/MCCSS directives for ODSP; the Supreme Court of Canada and Court of Appeal for the case law) are authoritative. Law-firm and financial-industry publications were used for explanation and corroboration, but they can lag rule changes or simplify; where they conflict with a primary source, the primary source governs.

This document explains the architecture so a family can have an informed conversation. It is general information only, not legal, tax, or financial advice. The tools interact in complex ways, and small drafting errors can cost a beneficiary their benefits. Retain a qualified Ontario estate lawyer experienced with Henson trusts and disability planning, along with a tax accountant, to design and implement the plan for your specific situation.

Related: ODSP in Ontario: A Plain-Language Guide for Families · Future & Succession Planning in Ontario: A Guide for Aging Parents of an Adult with a Developmental Disability · The Disability Tax Credit (DTC) and RDSP in Ontario: A Plain-Language Guide for Families · Legal Decision-Making in Ontario: Capacity, Powers of Attorney and Guardianship — A Family Guide