A discretionary trust may be considered when a will-maker wants to provide ongoing security for a beneficiary rather than a lump sum payment on the death of the will-maker. Some scenarios where this may be appropriate are if the will-maker wishes to provide support to a child with a lifelong disability or a flow of income for a spouse or adult child suffering from mental illness.
An important consideration when setting up a lifetime trust is ensuring the inheritance does not affect the beneficiary’s eligibility for government assistance. Referred to as a Henson Trust, this type of trust gives the appointed trustee absolute discretion when deciding how much of the money in trust will be made available to the beneficiary throughout their lifetime.
On the death of the beneficiary, any trust funds remaining are gifted over to an alternate beneficiary or beneficiaries as initially set out in the terms of the trust. This allows the trustee to provide a monthly income to the beneficiary that will not trigger a reduction or loss of government benefits.
Deborah A. Todd