Before RDSPs there were not a lot of options for Parents of disabled children to protect income they were saving for their child’s future, without having to pay a great deal of tax on it, as it grew.
The RDSP helps a great deal with this, however before the RDSP another way to dissipate the impact of a disabled person receiving a large inheritance which could cause large tax implications and worse a loss of services and programs (due to the change in their financial status) was a Henson Trust (a specialized version of the Absolute Discretionary Trust).
I was going to attempt to explain this one, but thanks to Mark over at the Blunt Bean Counter, he has a much better explanation with this one:
By Katy Basi
The RDSP is a much “simpler” (for lack of a better term) program to work with in terms of set up, but in some instances, the Henson Trust may be the only option available.
Note: Yes, this is a bit of a cheat on my part relying on other writers, but this has been sitting in my “To Do” list for a while. Please feel free to comment and ask questions, I will make sure I get some answers for you.
Also remember your loved one needs to have a Disability Tax Credit (DTC) for this as well. Evidently, I was mistaken, however, the ODSP is actually involved for Ontarians as well.
You make inference to some court cases around Henson Trusts here: https://www.canajunfinances.com/2020/04/23/more-rdsp-talk/#comment-127684
Can you provide some insight about potential issues that might receive a court challenge?
TIA