In Ontario, a minor child (under 18) is not entitled to directly inherit funds.
If a minor child is entitled to inherit (either under a will, or because of an intestacy) there are four options as discussed below.
Remember, it is impossible to do ‘estate planning’ after death. What the estate trustee may be able to do is likely to be seriously curtailed by the circumstances left by the deceased. For instance, if there is no Will, then option 1 is clearly inapplicable.
Probate: notice to the OCL required
If a minor is a beneficiary of an estate (or an unborn child), notice of the probate application MUST be sent to the Office of the Children’s Lawyer (usually referred to as The OCL).
Options:
The possible modes of dealing with the inheritance (and which should inform proper estate planning as well as estate administration after death) are –
1.The Will establishes a trust for the child (the estate planning option)
The Will may establish a trust, and name the trustee. The trustee could be the estate trustee or a different person. The trustee will hold the funds in the manner described in the Will.
Pro: Clear. Testator choses trustee, and sets terms of trust (eg. Payments for the benefit of the child, ultimate release date, etc.)
Con: Must be in the Will.
Costs: Moderate. There will be costs to administer the trust, but they should not be particularly large.
To consider: Depending on how long the trust will be held for the benefit of the child, choose the trustee carefully. For instance, a fund that runs for 25 years, can be problematic for an older trustee.
After Death – Planning no Longer Possible – Options
If there is no Will, or the Will does not establish the terms of the trust for the child’s inheritance, then the three remaining options are:
2. If the amount is less than $35,000
The funds can be paid to the parent of the child “in trust”.
Pro: Low cost.
Quick, easy.
Access to funds for the benefit of the child during
Con: Amount is capped.
Requires financially prudent parent.
3. Pay the inheritance into Court
Funds can be paid “into Court” and the Court (the Province of Ontario) will hold the funds in trust for the child beneficiary until the child reaches age 18 at which time the child can withdraw them.
Pro: “Low-ish” cost. A fee of 3% is charged on investment income credited to the minor’s account and on all payments out of court. In addition a care and management fee is charged.
Funds can be deposited and removed relatively quickly.
Con: No access to any of the income or principal until age 18
All funds released to the child at age 18
This may be the only viable option, especially if deceased died without a Will, the inheritance is pursuant to the Succession Law Reform Act, and it is not cost-effective to see the appointment of a guardian for property which is particularly true if the child is only a few years under 18.
4. Pay it to the child’s “guardian of property”
A suitable guardian of property for a child can be appointed by the Courts. The inheritance can then be paid to this guardian, to be held in trust by them for the benefit of the child.
A child’s parent is not automatically that child’s guardian of property. (Different rules apply for guardianship of the person – i.e. personal care for minors)
Background: A child’s parent is automatically a ‘guardian of the person’ for the child (and hence can consent on the child’s behalf to medial treatment), but is NOT automatically the child’s ‘guardian of property’ and is not automatically entitled to control the child’s assets or inheritance.
If there is to be a guardian for property of a child, the guardian must be appointed by the Courts. The Court application is made by the guardian, and if the Court approves their application, the Court will set certain terms of the guardianship. Preference is usually given to the parents, but other guardians are possible and if the amount is large it is likely that a trust company will need to be involved. Guardianship applications are not simple.
Pro: Flexible. Terms established by Court order.
Possible that guardian can access some of the funds for the benefit of the child before 18, if that is provided for in the Court order.
Con: More costly and takes time.
Requires Court application
Funds must be provided to the child when they turn 18
Might require fees for the trustee (not common if the parent is the trustee; common if a third party is the trustee).
An application for a guardianship of property for a child is a complex court proceeding. It is not something that the parent should ‘do themselves’. It is rarely cost-effective compared to a payment in to Court unless the amounts involved are significant and the child is well under 18 (i.e. the guardianship will be in place for many years).
In particular, a properly prepared and comprehensive management plan to deal with investment and disbursement of the child’s funds is required, and this is not a simple thing to do properly.
Estate trustees and parents considering a guardianship of property for a minor child should consult experienced legal counsel to consider the options.