the real/estate blog


Protecting a disabled beneficiary

Posted in Estate Planning,Trusts by Cesia Green on April 10, 2012
Tags: , , , ,

I see many clients who have children with medical conditions, most often varying degrees of autism, that will make it very difficult for them to manage their finances in the future. For these clients, there is a very specific type of trust that I put into their wills to ensure that their children will be cared for financially without them having access to the money directly, if that is appropriate.

A Henson trust is a trust specifically designed for a disabled beneficiary. The name comes from the first case that successfully used this type of trust, done by a couple named Henson. Their daughter, Audrey, had a developmental disability that would make it impossible for her to manage her money. In order to preserve her benefits under the Ontario Disability Support Program (ODSP), her father set up an absolute discretionary trust in his will that provided for money to be placed in trust with the trustee allowed to give money to Audrey, but not required to give her any money at any point during her lifetime. The Ontario government claimed that Audrey had an interest in the trust and attempted to take back her benefits, but Mr. Henson was successful at trial and at the Ontario Court of Appeal. After this case, Henson trusts have become common practice in Ontario for people with disabled beneficiaries.

The trust works by keeping all money in the trust with complete and absolute discretion on the part of the trustee. If the beneficiary needs funds, she or he can ask the trustee, but the trustee has no obligation to give any assets to the beneficiary. It is through this absolute discretion, and only through this, that the beneficiary can legitimately state that he or she does not own the assets and therefore has a low enough income to maintain ODSP benefits, which are significant as they include medical costs.

If you have a child (or other beneficiary) who has income-tied benefits, a Henson trust is an incredibly useful tool in your estate planning.

Advertisements

A trust that goes on forever

Posted in Trusts by Cesia Green on March 13, 2012
Tags: ,

Last Tuesday, I blogged about The Descendants and powers of attorney/advance directives. Today, I thought I would talk about one of the central plot points: the Rule Against Perpetuities.

The Rule Against Perpetuities is a very old common law rule that states, essentially, that trusts cannot go on forever (or in perpetuity). Basically, there has to be an end in sight for it to be valid. The length of time varies from jurisdiction to jurisdiction. I recently learned that in Florida it is 360 years, but in Ontario it is “lives in being plus 21”; in other words, 21 years after the death of the last person living who was contemplated by the trust. You cannot set up a trust that will continue forever, but you can set up a trust that will continue for 21 years after the death of your current youngest great-grandchild.

The Rule Against Perpetuities can get very complex; in fact, in 1961 there was a case in California that found that a lawyer had not committed malpractice by failing to understand it, since it is a very inscrutable law. Many jurisdictions have abolished it entirely, or, as in Florida, simply streamlined and simplified it. In areas where it still exists, however, it can create problems with long-term trusts. If you are thinking about setting up a trust that could go on for a long time, you would be well advised to speak to someone who can help you through it.

Talk about ruling from the grave!

Posted in Estate Planning,Trusts by Cesia Green on November 29, 2011
Tags: , , ,

When Wellington Burt died, he was one of the richest men in America. He was a self-made man, having earned his fortune in timber and iron. He was philanthropic during his lifetime, sharing his wealth with the people in his community – he built a hospital, an auditorium and a YWCA, among other buildings. There is even a town named after him; you can still visit Burt, Michigan. However, on his death, his children received a grand total of $0. The reason? Burt set up a trust for his assets after his death that was to run until 21 years after the death of his youngest grandchild.

Of course, there is an added twist to this story: Wellington Burt died in 1919. His youngest grandchild at the time of his death, Marion Stone Burt “Tootsie” Landsill, died in 1989 at the age of 87. 21 years from her death just happened, and his estate was distributed this year to three great-grandchildren, seven great-great grandchildren and two great-great-great grandchildren. Those individuals shared $110 million.

Setting up this kind of long-lived trust is possible, but you must be extremely careful not to violate the Rule Against Perpetuities – a rule so complex a judge in California once ruled that even lawyers can’t be expected to understand it. If you want to have a long trust in your will, you absolutely should see a lawyer about having it properly drafted.

You can read a full recap of the Burt story here.