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Trusts - Henson Trusts

Declarations - Criteria

S.A. v. Metro Vancouver Housing Corp. (SCC, 2019)

In S.A. v. Metro Vancouver Housing Corp. (SCC, 2019) the Supreme Court of Canada heard a case that will be familiar to those on ODSP, basically extending across Canada something that Ontarians already have in the form of a 'Henson Trust'. Where a trust does not allow the beneficiary to access the trust funds unilaterally, then the trust is not an 'asset' as that term is generally used:
[2] .... The central feature of the Henson trust is that the trustee is given ultimate discretion with respect to payments out of the trust to the person with disabilities for whom the trust was settled, the effect being that the latter (a) cannot compel the former to make payments to him or her, and (b) is prevented from unilaterally collapsing the trust under the rule in Saunders v. Vautier (1841), Cr. & Ph. 240, 41 E.R. 482. Because the person with disabilities has no enforceable right to receive any property from the trustee of a Henson trust unless and until the trustee exercises his or her discretion in that person’s favour, the interest he or she has therein is not generally treated as an “asset” for the purposes of means-tested social assistance programs (D. W. M. Waters, M. R. Gillen and L. D. Smith, eds., Waters’ Law of Trusts in Canada (4th ed. 2012), at pp. 572-73). The Henson trust therefore makes it possible to set aside money or other valuable property for the benefit of a person with disabilities in a manner that jeopardizes that person’s entitlement to receive social benefits as little as possible.

....

(1) What is the Nature of S.A.’s Interest in the Trust?

[35] The Trust at issue in this case has the essential features of a Henson trust. The terms of the Trust do not confer any fixed entitlements on S.A., and instead provide the Trustees with ultimate discretion over any distributions that might be made out of the Trust’s income or capital for S.A.’s care, maintenance, education or benefit (art. 1(a)(iv)(A)). Importantly, they specifically provide that the Trustees, in exercising their discretion, can decide not to make any distributions to S.A. at all: art. 1(a)(iv)(B) requires that “any income not paid in any year” be added to the capital of the trust fund, and arts. 1(a)(iv)(C) and (D) — which specify how any amount that remains in the trust fund upon S.A.’s death is to be distributed — contemplate the possibility that S.A might not receive all, or even any, of the trust property.

[36] It is thus clear that, although the Trustees have an obligation to consider whether to make distributions out of the Trust for S.A.’s care and maintenance, they are not actually required to distribute any of the Trust’s assets either to her or for her benefit. Unlike the beneficiary of a fixed trust (i.e. a trust where the trustee has no discretion as to distributions to the beneficiaries), S.A. therefore does not have an enforceable right to receive anything unless and until the Trustees decide to exercise their discretion in her favour.

[37] I would pause at this point to note that S.A.’s status as co-trustee is irrelevant to the determination of the nature of her interest in the Trust. In this capacity, she is required to reach decisions unanimously with her co-trustee, and must exercise her discretion independently, in accordance with the terms of the Trust and in compliance with her fiduciary obligations.[1] Moreover, the terms of the Trust provide S.A. with the power to name a new co-trustee in the event that her sister is unwilling or unable to act in that capacity (which is distinct from her sister’s being unwilling to actually make distributions to S.A.) — and therefore make clear that this office cannot remain vacant: there must always be two trustees who exercise their discretion independently of one another (art. 1(a)(ii)). These limitations effectively prevent S.A. from unilaterally ordering payments out of the Trust to herself as she may please. Therefore, S.A. has no greater access to the Trust’s assets than does any person with an interest in a Henson trust who is not simultaneously a trustee thereof. For this reason, I would not attach any significance to S.A.’s status as a co-trustee (see: Chambers Judge’s Reasons, at paras. 47-48).

[38] Another key aspect of the Trust is that it is structured so that it cannot be unilaterally collapsed by S.A. under the rule in Saunders v. Vautier, according to which a beneficiary of a trust (or multiple beneficiaries acting jointly) can terminate the trust and demand that the trustee convey legal title over the corpus of the trust to him or her — but only if the beneficiary has capacity and is absolutely entitled to all the rights of beneficial ownership in the trust property (see: Buschau v. Rogers Communications Inc., 2006 SCC 28 (CanLII), [2006] 1 S.C.R. 973, at para. 21; Waters, Gillen and Smith, at pp. 1235-1236; A. H. Oosterhoff, R. Chambers and M. McInnes, Oosterhoff on Trusts: Text, Commentary and Materials (8th ed. 2014), at pp. 334-335). Analyzing this rule in the context of the present appeal, it is important to observe that under the terms of the Trust, any remainder of the trust fund must pass to some third party upon S.A.’s death: art. 1(a)(iv)(C) and art. 1(a)(iv)(D) specifically prohibit her from appointing either herself or her creditors as remainder beneficiaries. The effect of this “gift over” is that S.A.’s interest in the Trust is not absolute, and therefore prevents her from terminating the Trust on her own in accordance with the rule in Saunders v. Vautier (see: Stoor v. Stoor Estate, 2014 ONSC 5684 (CanLII), 5 E.T.R. (4th) 207, at paras. 7 and 51-52).

[39] The foregoing analysis makes two things clear. First, the terms of the Trust provide the Trustees with exclusive discretion as to whether payments should be made to S.A. While the Trustees must periodically consider whether distributions should be made, they are not obliged to exercise this discretion in any particular manner. Second, the structure of the Trust prevents S.A. from terminating the Trust on her own under the rule in Saunders v. Vautier. As a result, S.A. has no enforceable right to receive any of the Trust’s income or capital: unless and until the Trustees exercise their discretion in her favour, S.A.’s interest in the Trust is akin to a mere hope that some or all of its property will be distributed to her at some point in the future.

....

[54] With respect, I am of the view that the Chambers Judge’s understanding of S.A.’s interest in the Trust represents an error of law. As explained above, S.A.’s status as a co-trustee does not change the fact that under the terms of the Trust, she has no fixed entitlement to the assets settled therein, and is precluded from unilaterally collapsing the Trust for her benefit (see para. 39 of these reasons). Given that the Trust only provides her with what is essentially akin to a mere hope of receiving some or all of the property at some point in the future, the Chambers Judge’s conclusion that S.A.’s interest in the Trust is “more than a mere possibility” — such that it falls within the meaning of the word “assets” as used in the Assistance Application — cannot stand.
As well, the case confirm the criteria for granting a declaration:
(1) Declaratory Relief

[60] S.A. requests, among other things, that this Court issue a declaration that the assets in the Trust are not hers for the purpose of the Assistance Application. Declaratory relief is granted by the courts on a discretionary basis, and may be appropriate where (a) the court has jurisdiction to hear the issue, (b) the dispute is real and not theoretical, (c) the party raising the issue has a genuine interest in its resolution, and (d) the responding party has an interest in opposing the declaration being sought (Ewert v. Canada, 2018 SCC 30 (CanLII), at para. 81; see also Daniels v. Canada (Indian Affairs and Northern Development), 2016 SCC 12 (CanLII), [2016] 1 S.C.R. 99, at para. 11; Canada (Prime Minister) v. Khadr, 2010 SCC 3 (CanLII), [2010] 1 S.C.R. 44, at para. 46).

[61] In my view, all of these criteria are met in this case. As I explained above (in Part A of the analysis), the interpretation of the word “asset” as it is used in the Assistance Application is a justiciable issue that falls within the jurisdiction of this Court. Moreover, that issue is real, and is one in which both parties clearly have a genuine interest. I am therefore unable to accept MVHC’s submission that no legal purpose would be served by the declaratory relief sought by S.A. In these circumstances, a declaration that the assets in the Trust cannot be treated as S.A.’s assets for the purpose of the Rental Assistance Program would clearly have practical utility, as it would settle a “live controversy” between the parties (see: Operation Dismantle Inc. v. The Queen, 1985 CanLII 74 (SCC), [1985] 1 S.C.R. 441, at p. 457; Daniels, at paras. 11-12; and Solosky v. The Queen, 1979 CanLII 9 (SCC), [1980] 1 S.C.R. 821, at p. 833). Accordingly, I would declare that S.A. has a right to have her application for a rent subsidy considered by MVHC in accordance with the terms of the Assistance Application, and that her interest in the Trust is not an “asset” for the purpose of such a determination.

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