Kenneth Pope speaks about how Henson Trusts are not necessarily restricted to parents of children with disabilities. The Henson trust can be used by family’s with no disabled children and still see more benefits than using a regular trust such as tax exemption and protection of the trust in divorce cases.
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Video Transcript:
I meet every day with families with children with special needs and often those children are adults, so in the course of discussing a Henson Trust for the child with special needs, the trustee arrangements, the amount of the inheritance and all of those things; I always canvas whether it would be useful to also have a Henson Trust for a child who does not have special needs. Because Henson Trusts are not just for kids with special needs. The standard testamentary trust advantages of asset protection intergenerational asset transfers and tax reductions are available and more ironclad protected in Henson Trusts than standard discretionary testamentary trusts.
So, for example, if a child not with special needs but in a reasonably high tax bracket, let’s just say that they make between 45 and 90,000 dollars, that’s gonna cover a lot of the tax paying population. If they were to inherit $400,000 directly, and for this all you need is two kids and a house in Toronto. Then when they invest the $400,000 at let’s say 5% for the long term, it earns 20,000 dollars and that $20,000 initially would be taxed in the hands of that child at 33%. So this is almost 7,000 dollars. Now, if instead, there was a Henson Trust for that child’s share, that child would be the trustee of their own trust and they would be a beneficiary of the trust a long with the children, let’s say three children.
So what would happen, is that 20,000 dollar would be trust income and what you would do, is you would spend or declare or attribute income in the hands of the children and each of those children has a tax credit of 11,000 dollars. So, you would split the money, there would be no tax payable, $7,000 a year saved in taxes and then if you were to divide that by three for example, you could make that contribution to an RDSP for the child. The Federal government would then make the matching percentage education grant contribution and this is a much better plan for the children and for the family.
In addition if that child was to divorce the asset held within the trust is not a matrimonial asset, and due to the circumstances is not divisible with the spouse. This is very advantageous and is often the best choice.