Minor Beneficiaries and Trusts
Protecting Children Through Estate Planning
For many parents, one of the most important goals of estate planning is ensuring that their children are cared for if the unexpected happens.
While preparing a Will allows you to determine who will inherit your assets, it is equally important to consider when and how those assets should be received.
This is especially true where beneficiaries are minors.
What Happens if a Child Inherits?
In Ontario, minor children generally cannot receive and manage significant inheritances themselves.
Depending on the circumstances, funds may need to be held and managed on the child's behalf until they reach the age at which they are legally entitled to receive them.
While this provides an important safeguard, it may not always reflect a parent's wishes.
Many parents would prefer that a child receive financial assistance gradually as they mature, rather than receiving a substantial inheritance all at once.
Testamentary Trusts
A Will can establish a testamentary trust for the benefit of a minor child.
Rather than distributing the inheritance immediately, the assets are managed by a trustee according to the terms of the Will until the child reaches the age - or ages - chosen by the parent.
The trustee can often use trust funds to assist with the child's:
education;
healthcare;
housing;
extracurricular activities;
general maintenance and support; and
other expenses permitted by the trust.
This allows the inheritance to benefit the child when it is needed most while preserving the remaining assets for the future.
Choosing the Right Trustee
Just as it is important to choose the right executor, selecting the right trustee is a significant decision.
The trustee may be responsible for managing investments, making financial decisions, maintaining records, and ensuring that the trust is administered in accordance with the terms of the Will.
Accordingly, parents should choose someone who is trustworthy, financially responsible, and capable of acting in the child's best interests.
Should Children Receive Their Entire Inheritance at 18?
Many parents are uncomfortable with the idea of a young adult receiving a substantial inheritance immediately upon reaching the age of majority.
Instead, a Will can provide for staggered distributions.
For example, a portion of the inheritance might be distributed at age 25, another portion at age 30, and the balance at age 35.
This approach allows beneficiaries to benefit from the inheritance while providing additional time for education, financial maturity, and life experience.
The appropriate arrangement will depend upon each family's circumstances and the parent's objectives.
Planning for Peace of Mind
Estate planning for parents involves more than deciding who will inherit.
It also involves deciding how those assets can best support children during their lives.
A carefully drafted trust can provide flexibility, protect an inheritance, and help ensure that assets are managed responsibly until children are ready to assume control themselves.
Final Thoughts
Every family is different.
The appropriate trust provisions for one family may not be appropriate for another. Factors such as the age of the children, the size of the estate, family dynamics, and long-term financial goals should all be considered when preparing an estate plan.
If you have young children and would like to discuss how trusts may form part of your estate plan, Tonelli Estate Law would be pleased to assist - BOOK A FREE CONSULT TODAY.
This article is for general informational purposes only and does not constitute legal advice.
