Leaving a Home or Inheritance to a Disabled Child on ODSP: The Henson Trust and the $100,000 Ceiling

An inheritance left the ordinary way can suspend your child’s ODSP. But the fix depends on what you’re leaving — the home they live in, a property they don’t, or cash. Here’s the asset test, the two trusts, and the RDSP, in plain terms.

I’m Arthur Zhao. When parents come to me about protecting a child on ODSP, they almost always arrive with the same assumption: that they have to lock everything into a trust or the inheritance will wipe out the benefits. The truth is more forgiving — and more precise.

Two things tend to surprise people. First, if the child actually lives in the home you’re leaving them, it’s already an exempt asset — the thing parents panic about is often not the real risk. Second, once money is set aside, it isn’t just how much that matters but how the trustee spends it: pay a therapy or equipment bill directly and it never counts as income; hand over cash and an annual limit kicks in. Get those two ideas straight and the rest — which trust, and how large — falls into place. Let me walk through it the way I’d walk a client through it.

Two trusts, two ceilings

Why the discretionary trust escapes the ceiling

The rule that matters is O. Reg. 222/98 s.28(1) ¶19: a beneficial interest in a trust that is available to be used for maintenance is exempt only up to the s.28(3) cap of $100,000 (and only where the capital came from an inheritance or a life-insurance payout). The operative words are available to be used for maintenance.

A Henson trust is drafted so the beneficiary has no enforceable right to anything — every payment is at the trustee’s absolute discretion. Because the child cannot compel a single dollar, the fund is not an interest that is available to them for maintenance, so it falls outside ¶19 altogether, and the $100,000 ceiling simply doesn’t apply.

That reasoning isn’t just clever drafting; it’s settled law. In the Henson case, a father left a fully discretionary trust for his disabled daughter. The Ministry argued the trust should count as her asset and disqualify her; the courts disagreed — the Divisional Court dismissed the appeal in 1987 (26 O.A.C. 332) and the Ontario Court of Appeal affirmed in 1989 (36 E.T.R. 192). That decision is where the “Henson trust” gets its name.

First, is the inheritance even a problem? The house question

Before you draft anything, check what you’re actually leaving. If it’s the home your child lives in, their interest in that principal residence is simply not counted as an asset (s.28(1) ¶1) — no trust needed for the house itself. Two wrinkles:

• Mixed use: if the property is their home but is also ordinarily used for something else (a rented basement, a storefront), only the portion reasonably attributable to the principal residence is exempt, as the Director determines (¶2).
• A home they don’t live in: real estate other than the principal residence is exempt only while the owner is making reasonable efforts to sell it (¶17). Inherit a rental or an empty family house and hold it, and it starts counting against the $40,000 asset limit (s.27(1)).

So the house is often the easy part. The hard part is cash — and that’s where the trust choice above earns its keep.

The RDSP: an uncapped exempt layer

One tool gets overlooked: the RDSP. Money inside a Registered Disability Savings Plan is fully exempt as an ODSP asset, with no dollar cap (s.28(1) ¶26.1). On the federal side it also comes with real money (figures per canada.ca):

• a lifetime contribution limit of $200,000, with no annual limit;
• the Canada Disability Savings Grant matches contributions up to $3,500 a year and $70,000 over a lifetime;
• the Canada Disability Savings Bond pays low-income beneficiaries up to $1,000 a year and $20,000 lifetime, with no contribution required;
• contributions are allowed until the end of the year the beneficiary turns 59.

The gateway is that the beneficiary must qualify for the federal Disability Tax Credit (DTC). In practice the RDSP usually sits alongside a Henson trust, not instead of it.

How the trustee should actually spend the money

Setting up the trust is half the job; how the trustee pays out decides how ODSP treats the money as income (s.43(1)):

Pay for disability-related items and services directly — no cap (¶9). If the trustee uses trust money to pay directly for approved, disability-related goods or services (and disability-related education or training), and the beneficiary isn’t otherwise compensated for it, none of it counts as income — with no dollar ceiling.

Hand cash to the beneficiary — capped at $10,000 per 12 months (¶13). Other payments or gifts from a trust or insurance paid to the beneficiary are exempt from income only up to $10,000 in any 12-month period; anything above that counts.

So the trustee’s best move is usually the same: pay the bill, don’t hand over the cash. Cover the therapy, equipment, care, and training directly — no limit — and keep any spending money to the child under $10,000 a year.

This has to be drafted by a lawyer — and a QDT is a different animal

A Henson trust lives or dies on one thing: the trustee must have absolute discretion and the beneficiary must have no enforceable right to the property. If a drafter writes shall pay or is entitled to instead, the child now has a vested interest, the trust drops straight back under the ¶19 $100,000 cap — or gets counted in full — and the whole point is lost. This is not a download-a-template job; use a licensed estate-planning lawyer.

One more thing not to conflate. The federal Income Tax Act has a Qualified Disability Trust (QDT) — but that’s about the tax rate a trust’s income is taxed at, not about ODSP asset rules. A QDT must be a testamentary trust that arose on death, resident in Canada; the beneficiary must qualify for the DTC and jointly elect with the trust; and a beneficiary can designate only one QDT per year (ITA s.122(3)). A Henson trust is not automatically a QDT; whether you can have both is a question for your tax and estate lawyer.

Arthur Zhao

Real Estate Broker · FRI · ABR · SRS · PSA · MCNE · E-PRO · CLHMS & GUILD Elite · REAIS

VP & Branch Manager, Bay Street Group Inc.

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