Trust for a Disabled Beneficiary: Henson and Special-Needs Trusts

Leaving an inheritance to a family member with a disability is one of the situations where a do-it-yourself gift can do real harm. Many government disability benefits are means-tested, so a direct inheritance can disqualify your loved one from the support they rely on. The solution is a properly structured trust — a Henson trust in much of Canada, or a special-needs (supplemental-needs) trust in the US. This article explains the concept. It is general information, not legal advice — this is a scenario where you should always use a specialist lawyer.

Why can an inheritance hurt a disabled beneficiary?

Disability benefits such as Ontario's ODSP or US programs like SSI and Medicaid are often means-tested: they limit how much money and assets a recipient can hold. A direct inheritance can push your loved one over the limit and cut off benefits.

That can mean losing not just income but linked supports like medication, housing, and care. A well-meant gift can leave the person worse off than if you had left them nothing — which is exactly why structure matters.

What is a Henson trust (Canada)?

A Henson trust is an absolute discretionary trust used in much of Canada. Because the trustee has full discretion over whether and when to pay anything to the beneficiary, the trust assets are generally not counted as the beneficiary's own for benefit purposes.

The trustee can use the funds to improve the person's quality of life — things benefits do not cover — without disqualifying them from those benefits. The rules and recognition vary by province, so local advice is essential.

What is a special-needs trust (US)?

In the US, a special-needs or supplemental-needs trust serves the same purpose: it holds an inheritance for a disabled beneficiary so it supplements, rather than replaces, government benefits like SSI and Medicaid.

There are different types (first-party and third-party trusts) with different rules, including possible payback to Medicaid in some cases. The structure must be precise, so this is firmly lawyer territory.

What can the trust pay for?

The whole idea is to fund quality-of-life items that benefits do not, while leaving the basic means-tested support intact. The trustee decides, guided by your wishes.

Typical expenses include therapies, equipment, education, travel, recreation, and a more comfortable standard of living than benefits alone provide.

  • Therapies, treatments, and medical equipment not covered by benefits.
  • Education, training, and assistive technology.
  • Recreation, travel, and quality-of-life expenses.
  • A companion or caregiver, where appropriate.

Who should be the trustee, and what about the leftover funds?

Choose a trustee who understands the beneficiary's needs and the benefit rules, and who will act carefully over a long period. Many families use co-trustees or a professional trustee, and name a backup.

Decide what happens to anything left when the beneficiary dies — for example, passing to siblings or to a charity. In some US trusts a Medicaid payback may apply first, which a lawyer will address.

How does iFinallyWill fit here?

iFinallyWill is a great way to organize your overall estate, name executors and guardians, and provide for your other beneficiaries. But for a disabled beneficiary, a Henson or special-needs trust must be drafted precisely to your jurisdiction and the relevant benefit program.

Use iFinallyWill to prepare the rest of your plan and to gather your thoughts, and engage a specialist lawyer to draft the disability trust itself. Getting this exactly right protects your loved one's benefits for life.

Frequently asked questions

Will an inheritance cut off my child's disability benefits?
It can, because many benefits are means-tested. A direct inheritance may exceed asset limits and disqualify your child. A Henson trust (Canada) or special-needs trust (US) holds the money without counting against benefits.
What is a Henson trust?
An absolute discretionary trust used in much of Canada. The trustee has full discretion over payments, so the assets generally are not treated as the beneficiary's own, preserving means-tested benefits like ODSP.
Can I just write a special-needs trust into an online will?
This is one scenario where you should use a specialist lawyer. The trust must match your jurisdiction and benefit program precisely. Use an online will for the rest of your plan and have the disability trust drafted professionally.
What happens to the money left when the beneficiary dies?
You decide in the trust — often it passes to siblings or charity. In some US special-needs trusts a Medicaid payback applies first. A lawyer will set this out correctly for your situation.