Leaving Property To Young Children

Douglas J. Green

What happens in the event that both parents of young children die?

Most parents at one time or another give serious consideration to what will happen to their children if they are unable to look after them due to death or severe disability. Will there be enough money to support the children? Who will raise them? Who will manage the children’s funds while they are still minors?

Many parents will leave their respective estates to each other in the expectation that the surviving parent will care for their children. However, parents frequently travel in the company of each other thereby increasing the odds that they may die in a common disaster.

Even if a parent survives, there is the possibility that parent will re-marry – even have more children! If that happens, how are the children’s interests to be protected?

It’s easy to arrange for someone to look after your children’s property.  

If you don’t appoint someone to look after your children, the Court will do so. However, the choice may be made from among competing family members or even someone from the Children’s Aid Society on behalf of the Government of Ontario.

There are headaches and expenses associated with Court appointments which can eat into the money which would otherwise be available for the children. As well, Court appointed guardians may have to make reports to the Court, pass accounts and may have limited authority to make decisions for the children on how their property is to be managed.

The “age of majority is not necessarily the age of maturity”  

The age of majority in Ontario and many other jurisdictions is 18. But those of us with teenagers know that young adults are frequently not mature enough to handle large sums wisely.

Unless parents choose to arrange to have their children’s property managed for them, that property may be at risk of being dissipated prematurely before the children are mature enough to resist their impulses or the influences of outsiders.

Choices available  

Fortunately, there are many options available to protect your children’s property and save money in the process.

Here are some frequently used techniques:

1. Your Will

You can name a guardian or guardians of your children’s property in your Will. In

Ontario the named guardian must then apply for confirmation by the Court under the Children’s Law Reform Act, but this should be a relatively straight-forward exercise since the Court will take into consideration the fact that the children’s parents have chosen whom they think are best suited to handle their children’s property.

It is particularly important to name a guardian if there is likelihood that there may be competition among family members as to who will “control” the children’s property.

2. Set up a trust for your children

Either in your Will, or during your lifetime, set up a trust for each of your children and name a trustee who will manage the children’s property until certain conditions are met, such as attaining a specified age. A number of parents stagger the ages at which children are to receive their inheritances – for example a third at age 18, half the rest at age 21 and the balance at age 25 – to not only protect the children from outside influences but to give the children time to “learn from their mistakes” before they receive the last of what they are due.

The parent can even direct under what conditions the money is to be used until the estate is settled. For example, parents might specify that until a certain age, the money is only to be used for living expenses and education, with the balance of any income earned during the year to be re-invested. Trusts can be tailor-made to suit almost any circumstances necessary to protect children and young adults (and older ones too!)

3. Sprinkling Trust

Instead of one trust for each of your young children, there may be some advantage to setting up a “sprinkling trust”, or family trust, for all of them. You may even want to include your spouse and other relatives (such as grandchildren) in the trust for certain tax advantages.

In a sprinkling trust, the trustee is authorized to dole out money to any one or more of the beneficiaries but not necessarily the same amount for each one of them. The trust is very flexible to meet the changing and often very different needs of the spouse, the children and grandchildren.

4. Mutual Wills Agreement

If one of the parents dies and the survivor re-marries, what happens to the children’s inheritance? By law, marriage revokes a Will – if the surviving spouse re-marries and dies without making a new Will, the new spouse may get all or a substantial portion of the estate built up for the benefit of the children from the first marriage.

One solution to this problem is to have a “Mutual Wills Agreement” between the parents. Basically, the parents agree that in the event one of them dies and the survivor remarries, the survivor will always have a Will or other arrangement in place to make sure that the children from the first marriage will receive at least their fair share of what they would otherwise have received if their surviving parent had not remarried.

You can’t get around the fact that marriage revokes a Will – that happens automatically under law – but you can give your children rights to receive what you want them to receive even if your surviving parent does not provide for them.

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These are but some of the ways young children and their inheritances can be protected in the event of the untimely death of their parents. There are other solutions available to suit just about everybody’s circumstances.