Are you a parent of a child with special needs? If so, you’ve likely spent many sleepless nights worrying about your child’s future and how they will manage financially when you’re no longer there. For many families, one powerful estate planning tool that helps provide security is a trust.
For this article, I sought inputs from Tanvi Viora, founder of Lemongrass Law. This post is not intended as legal advice—please consult a lawyer before setting up a trust—but I’d like to introduce one specific trust option in Canada: the Henson Trust, and how you can use life insurance to fund it.
What is a Trust?
A trust is an estate planning tool that creates a legal entity to hold and manage assets for another person or organization. There are three parties to a trust:
- Grantor – the person or party who establishes and funds the trust
- Trustee – the party / institution that manages the trust assets and carries out all directives of the trust
- Beneficiary – the party that is the recipient of the trust payouts. For a Henson trust, this would be your special needs child or family member.
Trusts can be funded in many ways, including real estate, cash, stocks, or other investments. For families caring for a loved one with a disability, one option designed specifically for their needs is the Henson Trust.
Henson Trust
It is a trust designed to benefit individuals with disabilities.
Its defining feature is that the trustee has absolute discretion over how and when money is distributed. Because the beneficiary has no legal control over the trust assets, those funds are not considered their personal resources.
This is crucial: in Ontario, for example, it means the beneficiary can continue to qualify for government support programs like ODSP (Ontario Disability Support Program), while still benefiting from the trust.
Using insurance as a means to fund a trust
One of the simplest and most cost-effective ways to fund a Henson Trust is through life insurance. In cases where both parents are caregivers of their disabled child, they should consider getting a Joint Life last-to-die policy on their lives. There are many advantages of a joint-life last to die policy:
- Cost savings – One policy covers both parents, which keeps administrative costs lower. There are various premium payment terms but a recommended option is to stop premium payments when one spouse passes away.
- Lower Premiums – While both spouses are insured, the death benefit is payable only once. In case of Joint-life-last-to-die policy, the death benefit is paid on the second death (the surviving spouse). This reduces the insurer’s risk and leads to lower premiums.
- Example: A couple aged 56 and 50 can insure $100,000 with a last-to-die policy for about $130/month. If they bought individual policies instead, they might pay $276/month combined—more than double! Source: Wawanesa Life and iA Financial
- Easier to qualify – Both spouses are underwritten, but because the plan pays on the younger, healthier spouse’s death, approval can be easier compared to applying individually. If the older unhealthier spouse were to apply for insurance on their own, they might get denied or charged more for their insurance alone.
- Simple and low risk – Insurance provides a guaranteed, 100% tax-free and low-cost benefit to the trust. For many special needs parents already stretched by time and financial demands, this is a set-it-and-forget-it solution.
What about single parents?
A Henson Trust isn’t just for couples—single parents should also consider how to fund one. A permanent life insurance policy is often the most reliable option. Depending on your budget, you could choose:
- Term-to-100 policy – a simple, affordable permanent plan
- Whole life insurance – with the option to add paid-up additions through dividends
Both options provide a guaranteed, tax-free death benefit to the trust, ensuring your child is supported.
Next Steps
Like any financial tool, a Henson Trust has advantages and limitations. While it offers strong protection for families with limited resources, it might not be the best fit for every situation. In my next post, I’ll explore the limitations of a Henson Trust and alternative approaches for families with more financial flexibility to invest in their dependents’ futures.
Planning for your child’s future is never easy—but with the right tools in place, you can gain peace of mind knowing they’ll always have financial security and support.
Sources:
- Legal inputs from Lemongrass Law
- Premium calculations from LifeGuide Broker Quoting System
