BC Disability Trusts
A disability trust holds money for a person with disabilities so their own assets do not disqualify them from provincial disability benefits in British Columbia. Set up as a discretionary trust, it lets a trustee use the funds for the person’s benefit while the assets are not counted against the PWD asset limit.
Lawyers for Disability Trusts
If a member of your family is a person with a disability, you may wish to settle a disability trust to provide for their financial needs. You may wish to establish the trust during your lifetime (called an ‘inter vivos trust’), or on your death through your Will (called a ‘testamentary trust’). The money you put aside in the trust can be used for the individual’s housing, food, medical and other costs. However, in order to remain eligible for financial assistance and special services from the provincial government there are some restrictions and important considerations that must be observed.
Settling a Disability Trust to Safeguard Assets and Income For Your Beneficiary
An individual may choose to settle a disability trust during lifetime in order to safeguard assets and income for the beneficiary. This may also be required to preserve the individual’s eligibility for disability assistance, such as in the case of an unexpected inheritance that was not left ‘in trust’ for the person with a disability; this requires the Ministry of Social Development and Poverty Reduction to approve the trust agreement. It is important to note that this type of trust does not benefit from any favourable treatment under the Income Tax Act and, accordingly, all income retained within the trust (not distributed out to the beneficiary) will be taxed at the highest marginal tax rate. Therefore, an accountant should be hired to guide the individual as to how to minimize income taxes.
Establishing a Disability Trust in Your Will
Many parents choose to establish a disability trust for their child in their Wills, as opposed to during lifetime. (These types of testamentary trusts are often referred to as Henson trusts, named after an Ontario Court of Appeal case, Ontario v. Henson (1987) 28 ETR 121, affirmed (1989) 36 ETR 192 (Ont. CA).) This may be because the parents may have multiple children whom they wish to treat equally in dividing their assets on death, or because they simply do not have sufficient wealth to put assets aside during their lifetimes for their child. Regardless of the reason, a testamentary trust may benefit from favourable tax treatment in the form of taxation at marginal tax rates for the first 36 months of the estate/trust if certain requirements are met. In order to receive these benefits as a ‘Qualified Disability Trust’ (“QDT”), the trust must be resident in Canada, the trust must elect jointly with the eligible beneficiary to be a QDT, the beneficiary must qualify for the federal disability tax credit, and the beneficiary must only choose one trust to be their QDT. If the Will also creates a purely discretionary trust (in which the beneficiary has no control over the trust assets), then it is also possible for the person with disability to maintain their entitlement to government disability benefits after the Will is reviewed by the Ministry of Social Development and Poverty Reduction.
Disability planning requires careful consideration with an estate planning lawyer. Our lawyers can advise you about the different options available and help you design an effective estate plan.
We are proud to offer our legal services to the people of Vancouver, Burnaby, New Westminster, Surrey, Coquitlam, Kelowna, and all other surrounding areas.
Frequently Asked Questions
The answers below give general information about British Columbia law. They are not legal advice. For guidance on your own situation, speak with a lawyer.
What is a disability trust?
A disability trust is set up to hold and manage money for a person with a disability, so they can benefit from an inheritance or gift without jeopardizing government support. The most common form in BC is a fully discretionary trust, often called a Henson trust, where the trustee decides when and how much to pay out. Because the beneficiary has no fixed right to the funds, the assets are generally not treated as theirs for benefit purposes. It is a way to provide for a loved one over the long term.
How does a Henson trust protect disability benefits?
Provincial disability assistance under the Employment and Assistance for Persons with Disabilities Act has limits on how many assets a recipient can hold. In a Henson trust, the beneficiary cannot demand the money, so it is generally not counted against those asset limits. That lets the person keep their Persons with Disabilities benefits while the trust covers extra costs that improve their life. The trust has to be drafted as fully discretionary for this to work.
Who controls the money in a disability trust?
The trustee controls the trust and decides when to make payments and how much, always acting in the beneficiary's interests. Choosing the right trustee matters, because they hold real discretion and responsibility, often for many years. Many families appoint a trusted relative together with a professional, or name backups to take over later. Clear guidance in the trust document helps the trustee make decisions the family would support.
What is a qualified disability trust?
A qualified disability trust (QDT) is a tax status under the Income Tax Act that lets a testamentary trust be taxed at graduated rates rather than the top flat rate that applies to most other testamentary trusts. To qualify, the beneficiary must be eligible for the Disability Tax Credit, and the trust and beneficiary must file a joint election each year. Meeting the requirements can reduce the tax the trust pays. A tax or estate professional can confirm whether a trust qualifies.
Can a disability trust be set up during my lifetime or only in my will?
Both are possible. A testamentary disability trust is created through your will and comes into effect on your death, while an inter vivos trust is set up during your lifetime. Each has different tax treatment, and only certain testamentary trusts can access qualified disability trust rates. The right choice depends on when the funds are needed and the overall plan. Legal and tax advice helps match the structure to your goals.
How does a Henson trust interact with an RDSP?
A Registered Disability Savings Plan (RDSP) is a separate registered account that grows tax-deferred and can attract government grants and bonds, while a Henson trust is a private trust managed by a trustee. The two can work together: an RDSP builds long-term savings with government help, and a Henson trust holds other funds flexibly without affecting benefits. Coordinating them can make the most of both. A planner familiar with disability planning can help set the right balance.
Who can be the beneficiary of a disability trust?
These trusts are designed for a person with a disability, typically someone who receives or may qualify for provincial disability assistance, and often someone eligible for the federal Disability Tax Credit. The goal is to supplement, not replace, the support they already receive. The structure is tailored to that person's needs and the benefits they rely on. An assessment of their situation guides how the trust should be drafted.
Why not just leave money directly to a family member with a disability?
A direct gift or inheritance can push a person over the asset limits for disability assistance and interrupt their benefits, and it may also be spent quickly or mismanaged. A properly drafted disability trust avoids these problems by keeping the funds under a trustee's control and outside the beneficiary's own assets. It provides steady, long-term support while protecting eligibility for government programs. This is why families so often use a trust rather than an outright gift.
(604) 900-2538
Onyx Law Group represents clients in family law throughout British Columbia, estate and trust litigation, estate planning and probate matters. Consult with our experienced BC team at
(604) 900-2538