Leaving money to minors – a major decision
By Roger Higgins
You’re about to make a major decision: You want to leave part or all of your estate to a child or children who are minors or young adults.
How you choose to make your bequest can have a major impact on your other heirs and on the effective distribution of your estate.
Let’s explore the complexities:
- If you leave money directly to a child who has not yet reached the age of majority, the provincial authorities may have the right to manage that money until the child becomes an adult. A public trustee is appointed who will charge a fee to manage your child’s inheritance and may not manage or disperse the funds as you would have wished. Then, when your child reaches the age of majority, he or she will receive your inheritance as a lump sum.
- You may choose to have your child’s inheritance held in trust until your child is more mature – you choose a specific age in your will with the trust managed by a personal representative you name who can be given the power to dip into the capital of the trust for the benefit of your child, according to the directions in your will.
- If you wish to make a child a joint owner or direct beneficiary of your assets, even though you directed in your will that your 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 your child is a joint owner of an account or asset, or a direct beneficiary of investments held within a registered plan or insurance policy, he or she may receive the funds immediately because the assets will not form a part of your estate (potential exception in Québec). 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 to the deceased at time of death, as they otherwise would. That’s true – but tax deferral only exists if, at time of death, a registered term-certain annuity is purchased for the child (unless the child suffers from a disability). The annuity payments are taxable income to the child and must be fully paid out prior to the child’s 19th birthday.
When your intended beneficiary is a minor, the most recommended choice is to leave the assets in the estate so the funds are subject to the terms of your will.
The will creates the testamentary trust and names a trustee who will manage and invest the funds according to your terms and conditions.
Your professional advisors can help ensure your estate will be controlled and dispersed exactly as you wish.
This column is sponsored by Roger Higgins, a BA, CFP Division Director for Investors Group in the Kootenays. For all your financial planning needs, contact Roger at 250-352-7777 of email at [email protected]
