There are a number of ways that a child under 18 (referred to as a “minor”) may inherit assets. The child could:
- be named as a beneficiary in a Will
- inherit from a relative who dies without a will (referred to as “dying intestate”) if the child is one of the legal beneficiaries under the intestacy laws of Ontario; or
- be named as a beneficiary of a life insurance policy or any other asset where a beneficiary can be named, such as a segregated fund, an RRSP/RRIF, pension plan or other death benefit.
In Ontario, a minor child is not permitted to receive a substantial inheritance directly, monetary or otherwise. Parents of minor children do not have an automatic right to control an inheritance received by their minor child (see our Concepts Newsletter, Summer 2010)
If there is no trust in a will, a parent can only control a minor child’s inheritance by applying to the Court to be appointed the minor child’s Guardian of Property. They will then have to manage the inheritance for the minor child’s benefit according to the terms of the Court Order.
Where an adult person does not have the legal authority to receive the monies for the minor, they must be paid into court by paying them to the “Accountant of the Superior Court of Justice”. Once the proceeds are paid into court, the person having legal custody of the child must make written requests in order to have payments made out of court for the child’s expenses. When the child reaches the age of 18, he or she can demand that the inheritance be handed over to him or her from the Court. The child can also demand a full accounting of all transactions affecting the inheritance unless previously approved by the Court.
A parent (or other person leaving a gift to a child) who wishes to defer payment of the child’s inheritance beyond the age of 18 can include a trust in his or her Will. In a trust, a parent or other person, such as a trust company, is appointed to act as “trustee” to manage the minor child’s inheritance. Usually, this is someone who is good at handling money.
Having a trustee in charge means that the beneficiary cannot squander the property; it’s protected for his or her benefit. The parent can also outline restrictions as to their desired use of the trust funds. For example, they can specify that:
- partial payments of the inheritance are to be made at various ages with income (what the trust assets earn) being paid out regularly. Such a scheme gives the parent some comfort that the child will be able to handle the inheritance when it is received. Typically, a trust provides that it will dissolve, directing that all assets be distributed to the child when he reaches a certain age, such as 25 or 30
- the trust may only be used to tend to the basic health, safety and welfare needs of the child until he or she is an adult
- the trust may only be used for educational expenses
There are also income, estate and gift tax advantages to using a trust. For further information about establishing a trust for a minor child or other intended beneficiary, please contact Andrea P. Kelly.