This case provided rulings on a few key issues:
- Is an interest in a discretionary trust an asset?
Yes. The interest has no legal value since the beneficiary only has the “right to be considered as a potential recipient” and has “no interest in possession”; however, it is still a “beneficial interest”.
- How does that interest affect eligibility for social assistance?
The answer “will vary from program to program.” “[D]iscretionary trusts … provide some individuals with benefits unavailable to others who are not beneficiaries of such trusts.” That potential interest of the beneficiary is relevant where access to the program involves not just “eligibility” but also “discretion as to which of the eligible applicants should receive a rental subsidy.” Specifically, rental assistance is a program “in which assistance is not available for all eligible applicants”, and therefore a beneficial interest in a discretionary trust may be considered when selecting between competing eligible applicants. (The interest does not affect other programs where assistance is available for all eligible applicants.)
- Must a beneficiary of a discretionary trust provide information about the trust’s assets when applying for rental assistance?
Yes.
Background
Our community is committed to supporting our vulnerable citizens. We provide social assistance programs to promote the independence of adults who, due to a disability, are not able to be self-supporting. These programs are important, but at best only provide a below-poverty-level existence. For example, the province’s main assistance program, Employment and Income Assistance for Persons With a Disability (“EIAPWD”), provides a monthly support of just $375 for rent.
As a result, many parents routinely help their adult children who have disabilities. These parents also wish to continue that private support after their deaths. However, they are discouraged from leaving an outright inheritance since the gift would increase the adult child’s assets and thereby reduce the availability of the social assistance (due to financial eligibility criteria). The child would be no better off, and in many cases, in a worse position.
Instead, parents have been encouraged to put their estate into a discretionary trust for the child. The appointed trustee is given full discretion about whether and how to provide assistance. The adult child has no right to demand payment. Therefore, the child’s interest in the trust has no value and does not increase the child’s assets for the purposes of the financial eligibility criteria. The adult child maintains the social assistance, and the parent’s lifetime support can be continued after death through the trust.
This trust arrangement is sometimes called a “Henson trust” – a reference to a 1989 Ontario court case that confirmed its effectiveness. The arrangement is specifically accepted under the trust policy of the EIAPWD program. This January 2016 BC Court of Appeal decision considered whether the trust arrangement works the same way for the specific social assistance program of rental assistance.
Facts of the Case
The individual, identified as “S.A.”, is a person with disabilities who was receiving rental assistance (in addition to a monthly EIAPWD benefit). S.A. became a beneficiary of a discretionary trust under her father’s estate. In her annual application for rental assistance, she provided the trust document to the housing provider, but refused to provide details regarding the trust’s assets (she justified her refusal with the explanation that since the trust was discretionary, the trust’s assets had no asset value to her). The provider declined her application on the basis that she had not provided required information.
S.A. and the housing provider brought competing petitions to the court. The chambers judge found that S.A. must disclose the “value of the discretionary trust” so that a decision could be made about her application for rental assistance. The wording of the decision created some uncertainty in the legal community. Did it imply that there was now a “value” to an interest in a discretionary trust?
On appeal by S.A., the matter was joined by the intervenor, Disability Alliance BC Society, to address concerns about the “value of a discretionary trust” and to provide context regarding the importance of discretionary trusts for persons with a disability.
S.A.’s appeal was dismissed.
The Decision
The Court confirmed that a beneficiary of an interest in a discretionary trust “has no such absolute right to … an ascertainable part” (para. 46). The Court also agreed that such trusts “play an important role in promoting the independence and full citizenship of PWDs.”(para. 47) However, the Court determined that because S.A. did have a “beneficial interest” in the trust (para 54), she had to produce the requested information to assist the housing provider in determining whether she should receive rental assistance. (The housing provider’s asset policy required disclosure of all assets including those in which an applicant has a “beneficial interest”.)
A critical aspect of the decision may be found at paragraphs 47 and 55 where the Court identified “difficult public policy questions.”
The Court described the rental assistance program as having differing criteria than the EIAPWD program, since it is “a program in which assistance is not available for all eligible applicants” (para 55). In that “context”, the Court found that the eligibility criteria were different, in particular as to: “whether benefits from a discretionary trust must be taken into account” (para 47).
In brief, although the Court agreed that S.A.’s interest in the trust had no legal value, the Court described a discretionary trust as providing “benefits” that are “unavailable to others who are not beneficiaries of such trusts” (para.47). The Court therefore found that, apart from the initial decision about eligibility, the provider was correct to also require the information about the trust since it had to make the further decision as between competing eligible applicants for the limited discretionary rental assistance.
The reasons raise at least two difficult implications.
- How will the housing provider use the information about the trust? The Court stated the “discretionary trusts also provide some individuals with benefits” (para 47). Yet, the Court also confirmed that a beneficiary has no compellable proprietary value in the trust: “[w]here a beneficiary has no such absolute current right to direct the trustees to pay him an ascertainable part of the net income or capital he has ‘no interest in possession’” (para. 46). The next question is: what value can the housing provider place on the “benefits” when making eligibility decisions?
The Court offered no guidance on this point.
A narrow interpretation would be that “benefits” can only mean amounts already paid or committed to being paid in the future. If this interpretation prevails, S.A.’s eligibility may be unaffected by her trust since her evidence was that she has never received anything from the trust.
A broader interpretation would be that “benefits” includes whatever the evaluator considers S.A. might be likely to receive from the trust in the future (the potential benefit). Unfortunately, it seems that the Court might be leaning towards the later interpretation. The hypothetical question may be: if two competing applicants are otherwise equal in eligibility but one applicant is also the beneficiary of a discretionary trust, then may that fact be considered to prefer the non-beneficiary applicant? It seems the Court would answer: “yes.” But still the questions remain: how would the potential benefit be valued? And to what degree should it weigh into the decision-making? Will there be formal guidelines or criteria developed to ensure a consistent approach to valuation?
- Depending upon the answers arising from the first implication, any person who has a discretionary trust (or whose family would like to create one) and who is also currently (or may in the future be) relying upon rental assistance must now consider whether the trust will negatively impact their eligibility for that rental assistance. This may lead to more non-trust planning for parents of persons with disabilities.
For example, the BC Housing “Asset Requirements” policy does already exclude RDSPs, so they may become an important planning option (at least until there is clarity about how the housing providers will use the trust information.)
Notwithstanding these uncertain implications, there are two aspects of the Court of Appeal decision that are immediately helpful.
The original chambers decision raised questions about the impact and “value” of a discretionary trust in all areas of eligibility for assistance. The Court of Appeal has confirmed that its decision is limited to eligibility for discretionary programs such as rental assistance “in which assistance is not available for all eligible applicants“. Therefore the decision should not affect eligibility for EIAPWD. Note, however, that other assistance program eligibility may now require some review since the criteria will “vary from program to program and depend upon the rules and regulations that govern eligibility for any particular program” (para 47).
The Court of Appeal decision also does not change the common law regarding the nature of an interest in a discretionary trust. The Court confirmed that the interest is only a potential benefit. The Court simply found that this mere potential is nonetheless significant enough to be relevant when considering a choice between competing eligible applicants for discretionary social assistance.
The next step in an effort to clarify matters for rental assistance is likely non-judicial. The provincial government has the power to set the criteria that is applied under the BC Housing “Asset Requirements” policy. That policy does already encourage the development of some private financial independence by exempting assets such as the RDSP. It would be helpful have the policy updated to define criteria for the evaluation of a beneficial interest in a discretionary trust. Ideally, the province would confirm: that an interest in a discretionary trust has no current value; that payments for disability-related expenses should also be exempted; and, that only non-disability payments should be considered as evidence of likely future “benefits” (to use the Court of Appeal’s term). This policy would be consistent with the current trust policy for EIAPWD. Such policy guidance would also be preferable to the likelihood of inconsistent valuation assumptions if the matter is left to each separate housing provider.
Disability planning was already among the most complex aspects of estate planning. It is now more so. This increased complexity re-emphasizes the compelling need for us to provide well-informed, solutions-oriented advice to our clients.
