Who is the trustee of the trust for a minor child?

The following question from a reader asks about the logistics of administering a trust for a minor child. As you will see, a properly drafted will is the key to this arrangement running smoothly. Here's the question:

My aunt left a will for me and my children, both minors, 15/13 yr old. If their funds are held under a trust, who will be their trustee? Is it their mother or anyone that is appointed by the executor? If funds are held until minors are 18 years old, can the parent use the funds before they turn 18? Can my aunt or friends be the trustee if the parents of minor are still alive?When funds are left to a minor in a will, the will itself is the guide to how the trust is going to be set up and administered. The trustee of all trusts in a will is the executor and trustee of the estate, unless the will specifically says something different. For example, some people who are leaving large trusts behind will name a trust company to manage the trust to ensure that it's done properly and honestly. This can happen even when the trust company is not an executor.

In your question, you ask whether the trustee is someone appointed by the executor. You'll note that the trustee is not appointed by the executor, it IS the executor, unless as I said, the will specifies someone else. In some circumstances, it could be the Public Trustee for the province.

It's interesting that you ask whether someone else can be the trustee if the minor's parents are still alive. This has nothing at all to do with the parents. It's all about a gift coming from an estate and that gift isn't given to the parent. It's going to a child, by way of a trustee. And yes, that trustee can be anyone who is named in the will. In your case, it can't be the aunt because you said it's her will, so presumably the trust isn't created until she has passed away. It could, however, be friends or siblings. The parents do not have the right to be a trustee just because the beneficiary is their child. It isn't their money so they have no right to it. In fact, plenty of trusts are set up with specific instructions that the child's parents never, under any circumstances, be made the trustee.

The will should also state the age at which the minor is supposed to inherit the money. While the child can't inherit while he or she is under the age of majority, the will can specify a later age. Don't assume the minor will inherit on his or her 18th birthday; the will might say age 21 or even older. The age set out in the will is the age the child will inherit. I've seen people set up trusts for individuals who won't inherit until they are 65!

Whether or not some of the money can be used before the child turns 18 also depends on the will. If the will simply says the child inherits at age 18, then that's what happens. No advances would be allowed. It would take a court order to change that, and such orders are not always granted. In the will that sets up the trust, look for a specific clause that allows the trustee to use the funds, and for what purposes. This type of clause should also specifically say whether the capital of the trust can be used, or only the interest earned on it can be used.

Sometimes funds set aside for a child are restricted so that they can only be used (before age of inheritance) for specific things such as education. In most cases though, a will says that the funds can be used for the child's general benefit. Keep in mind though, this is at the discretion of the trustee. You or the child may ask for funds but the trustee can say yes or no.

Hopefully this answers a few questions about trusts for minors. I hope it also points out to the many parents reading this post just how important it is to have a trust for children properly drafted in your will. Simple isn't always better if it leaves out these essential details.

Links to Office of Public Trustee

Do you ever wonder how the Office of the Public Trustee looks after the estates of deceased persons? Do you have questions about when they will become involved in an estate or how to go about getting them involved? If so, click on the link that corresponds to your province.

Alberta
British Columbia
Manitoba
New  Brunswick
Nova Scotia
NWT
Ontario
PEI
Quebec
Saskatchewan
Yukon

What does an executor do if a beneficiary doesn't want his inheritance?

A while ago, I blogged about whether or not a beneficiary could turn down an inheritance (which he can). Click here to read that post. That's fine from the beneficiary's point of view, but what if you're the executor? What are the logistics of probating and administering an estate when a beneficiary just doesn't want what was left to him under the Will?

In most of the cases I've seen, a beneficiary who turns down an inheritance is doing so "in favour of" another person. For example, a woman with a husband and children died without a Will. Instead of dividing up the estate among the husband and children as the law dictated, all of the kids agreed that they would rather their father have the mother's estate. Each of those children turned down the inheritance, but only did so on the understanding that their father would get their share. They didn't want one of the siblings or a charity or the government or anyone else to have their share.

In this case, the application for the court (in this case an Application for a Grant of Administration) was prepared just as the law said that it should. The schedule of beneficiaries asked who was entitled to receive the shares of the estate and we described the husband and the children as those entitled to them. In other words, on the face of the documents, there was no indication that the children might turn it down.

We had each of the children sign an Assignment of their share. This means that each of them asked the administrator of the estate to pay their share to their father rather than to them. The Assignments were signed and witnessed. Each child was required to see a lawyer of his or her own to make sure that they knew what they were signing. When the estate was ready to be paid out, the Assignments were followed and the entire estate went to the father.

Occasionally there will be an estate where a beneficiary doesn't want to receive his or her share but won't co-operate by signing anything. That of course is someone who is trying to make a point! If the executor or administrator doesn't know where that person lives or cannot get payment to them, he might end up going to court to ask a judge for permission to pay the inheritance somewhere else. That could be to the Public Trustee or to another beneficiary.

The executor or administrator shouldn't pay someone's inheritance to another person or organization without either a written Assignment or an order of the court.

Planning ahead can ease the process of adult guardianship

I'm attaching an article here that talks about a non-profit group in Texas that acts as legal guardian and trustee for adults who need that help, when appointed by the courts. I don't know of any Canadian equivalent. What do you think of this concept? In Canada, if you haven't planned ahead for your own mental capacity, the courts will likely appoint a family member or friend to represent you. If you don't have anyone who is able and willing to take this on, the remaining options are a trust company (for financial, but not health/medical/personal, decisions) or the Public Trustee and Public Guardian.

I completely agree with the author's comments that people should plan ahead. Most estate-planning lawyers consider planning for incapacity to be just as important as planning for passing away, and will encourage clients to prepare all needed documents.

Can a minor inherit money or property?

The general answer is "no". A person must be of the age of majority (either 18 or 19, depending on where in Canada you live) to receive an inheritance.

So what happens to the money or property if it's left to someone who is a minor? It's held in trust for the minor until he or she reaches the age of majority.

This is a situation in which the existence of a strong Will is essential. The Will can control at what age the child inherits the money, who holds it for them in the meantime, and whether any of it can be used for the child before he or she comes of age. Most parents I've spoken to over the years say they'd like to put some controls on the inheritance for children to make sure that the children aren't taken advantage of by anyone, and to help the child maximize the benefit of the inheritance. They can achieve that using their Wills.

If there is no Will in place and a minor is a beneficiary of the person's estate, the money will most likely be held for the child by the Office of the Public Trustee. The full amount of the inheritance (plus interest of course) will be paid to the child on his or her 18th (or 19th) birthday.

In a Will, the terms of the trust are decided by the testator, allowing parents to choose an age later than 18 or 19 if that seems appropriate, and to choose who will look after the money. The parent can also direct that funds from the trust be used to pay for education, medical expenses or general living expenses.

Personal or household items that are left to a child are usually held by the executor/trustee of the Will. Depending on the item, the trustee might decide that the child can have or use the item before reaching the age of majority, if that would be of benefit to the child. For example, you might not want to give valuable jewelry to a 10-year-old, but you might be ok with putting up the framed photos the child inherited.

A minor's name cannot be added to the title of real estate. Again, that has to be held in trust either by the executor/trustee or another person specifically named in the Will.

What happens if the beneficiary of an estate has dementia?

I find it interesting to talk to executors of estates when money or valuables are left to an elderly person who has Alzheimer's disease or other dementia. The executors' attitude is sometimes along the lines that the elderly beneficiary won't know or realize that he or she has inherited something, and certainly won't spend it, so why bother giving it to them. The executor then wonders if the elderly beneficiary's gift should be given to someone else who will appreciate it.

This goes completely against logic for me. The elderly person with dementia that prevents him or her from looking after finances is exactly the person I'd think an executor would want to protect.

I've talked in a few posts about the executor's role and the fact that the executor can't simply decide not to pay an inheritance to a beneficiary for his or her own reasons, so I won't discuss that again right now. I would like to talk about the logistics of paying an inheritance to a person with dementia.

Assuming that the beneficiary is elder and that the existence of dementia is not a question, then there is quite likely someone legally appointed to help with their finances. The first thing to look for is whether anyone under is acting under an Enduring Power of Attorney. If so, the executor can send the beneficiary's inheritance to the person acting under the Power of Attorney, to be looked after on behalf of the beneficiary.

If the elderly person with dementia did not appoint anyone under an Enduring Power of Attorney, and is disabled to the point where he or she cannot deal with an inheritance, then it is highly unlikely that he or she can still sign an Enduring Power of Attorney. In this case, the next option is to have someone appointed by the court to act as legal Trustee for the beneficiary.

Trustees are most often family members, but sometimes it happens that the elderly beneficiary will have no relatives available to do this job. Perhaps the person who left the beneficiary the inheritance in question was the last living relative. In that case, a trust company or the Public Trustee could be appointed by the courts as a trustee. The executor is perfectly within his or her rights to make a telephone call to a trust company or the Public Trustee to ask for help in determining whether he or she should pay the inheritance not to the beneficiary but to a representative for the beneficiary.

Many executors in this situation will take the attitude that going through court-appointed trustees is just too much trouble, and will simply write a cheque and deposit it into the elderly beneficiary's bank account. This solves the issue of moving the money out of the estate and into the hands of the beneficiary. However, it doesn't do anything to protect the elderly person who just inherited the money, either from strangers or from other beneficiaries who are aware that the elderly person now has money but can't manage it due to dementia.

If the executor deposits the money and doesn't have a signed Release from a person acting under an Enduring Power of Attorney or court Order, there is a risk. A beneficiary or family member of the elderly beneficiary may later realize that there was an inheritance, and if the money is no longer in the elderly beneficiary's account (either because it was dissipated or because someone scammed it from the elderly person) then the executor is going to be in a tough position. The executor can be held personally liable for a beneficiary's inheritance if he or she can't prove that it was paid to the proper person.

As an executor, take a cautious approach and ask questions as you go. You should have a legal advisor if you are faced with unusual difficulties such as an incapacitated beneficiary, both to protect the beneficiary and to protect yourself.