Leaving money to minors can become a major issue

You’re preparing your will – that’s good – and you’re considering leaving part or all of your estate to children or grandchildren who are minors – that may not be so good. Let’s look at why you need to carefully consider whether or not to name minor children as direct beneficiaries in your will.

• If you leave money directly to a child who has not yet reached the age of majority, provincial authorities may have the right to manage that money until the child becomes an adult. A public curator is appointed who will charge a fee to manage your estate and may not manage or disperse the funds as you would have wished. Then, when the child reaches the age of majority, he or she will receive your inheritance as a lump sum. Is a young person 18 or 19 years old capable of managing a (perhaps) huge sum of money?
• It is usually more prudent to have your inheritance held in trust until the child is more mature – you choose a specific age in your will (21, 25, 30, it’s your choice) with the trust managed by a personal representative who you choose. This person can be given the power to dip into the capital of the trust for the benefit of the child, according to the directions in your will.
  It is generally not a good idea to make a child a joint owner or direct beneficiary of your assets. If you do, even though you directed in your will that the child was not to receive a large sum earlier than you specified, he or she may still receive a large amount of money right away. For example, if the child is a direct beneficiary of an insurance policy, he or she may receive the funds immediately because the assets will not form a part of your estate. If the child is a minor, the public authorities may step in to manage the funds until the child reaches the age of majority.
• You may have heard that there are tax advantages to naming a minor child as a beneficiary of investments held within an RRSP because the RRSP proceeds will not be immediately taxable at time of death, as they otherwise would. That’s true – but the tax deferral is not forever and, at time of death, a registered annuity must be purchased for the child, which (unless the child suffers from a disability) must be paid out prior to the child’s 18th birthday – putting a great deal of money in a young person’s hands.

If your intended beneficiary is a minor, it is usually preferable to leave the assets in the estate so the funds are subject to the terms of your will. You can create a testamentary trust, and name a trustee who will manage and invest the funds according to your wishes. Your professional legal and financial advisors can help you make sure where there’s a will, there’s (your) way.