Resist “ruling from the grave,” says Felice Kirsh
Trying to “rule from the grave” may not be the best idea when it comes to deciding whether to provide children with an outright gift from a will or leave money in trust, says Toronto estate and trust specialist Felice Kirsh.
Kirsh, a partner with Schnurr Kirsh Schnurr Oelbaum Tator LLP says that it is fairly common for wills to hold money in trust for children until they reach a certain age, as many people want to ensure that their children have money later in life. “Parents want to ensure that their children don’t spend their inheritance all at once or frivolously,” she explains.
In a number of circumstances, she says, that decision makes sense: “If children are under the age of 18, money should be held in trust for them as they are minors under the law in Ontario. It does make some sense to hold money in trust for children perhaps until they are in their mid 20’s or so to ensure they have money for their post secondary education.
“The typical provision is to allow for payout of capital in stages sometimes one third at 18, one third at 21 and the balance at 25 with the provision for income starting at 18 and a right to encroach on capital prior to 25. Sometimes the right to encroach is limited to purposes such as education or health and sometimes it is left wide open,” she says.
But, she adds, holding money in trust for children past the age of about 30 is not necessary. “To some extent if someone cannot be trusted to manage their money at 30 will they really be able to do so at 35 or 40? There are certainly exceptions such as children with special needs,” she says.
In addition, says Kirsh, testamentary trusts can create problems. There can be ongoing estate administration as well as legal and accounting fees that may be a significant drain on the estate. An estate must also file tax returns every year and there is an obligation on trustees to pass accounts on a regular basis, she adds.
Also, she says: “Sometimes parents choose one sibling to be the estate trustee and that person then has to administer the ongoing estate and determine when capital encroachments should be made on behalf of the other beneficiaries – their siblings. This creates the potential for serious conflict and puts the sibling who is the estate trustee in the unenviable position of being the one making decisions and doling out money.”
While a corporate trustee might be more objective, in many cases this may cost the estate more, adds Kirsh.
Ultimately, explains Kirsh, testators must take all of these issues into consideration, as well as other factors such as the size of the estate, when they are deciding whether to provide their children with an outright gift in their will or whether to provide money to be held in trust.
“Testators must realize that they cannot rule from the grave as there is no way that they can anticipate what will happen in the future – who will need money when,” she says.