Minor beneficiary trusts

Dec 10, 2020

Whether you’re a parent who wants to ensure your children are cared for, or a grandparent who wants to benefit your grandchildren, here are some things consider when establishing a minor beneficiary trust.

Your ‘To Do’ List

Have you received professional advice?

Whether you connect with an advisor at Coastal Wealth or your estates and trusts lawyer, it is important to have advice when establishing a trust. Is a minor beneficiary trust necessary? For parents of minor children: yes. For grandparents and others, it depends on the purpose and size of the trust, and the length of time the trust would be in place.

What kind of trust do you want to establish?

Will it be an inter vivos trust (established during your lifetime) or a testamentary trust (established through your Will for after your death)? Establishing the trust during your lifetime may not make sense from an income tax perspective, and lessens your options if in the future you require the assets to maintain your lifestyle. Minor beneficiary trusts can be established through your Will, with a specified dollar amount or percentage of your estate.

What is the purpose of the trust?

If the trust is for your children, it can be to ensure that their care, maintenance and educational needs are met through to adulthood. If it is for your grandchildren and you have grandchildren in different families, will there be a trust established for each family, or one pool of funds for all grandchildren?

How can the trust funds be used?

Parents will want to ensure their children are cared for as though they were still there. Grandparents may decide the trustee will have no discretion over the funds; e.g., the trust can be used only for tuition fees, or the grandchild has no access until a specific age. Or a grandparent may decide the trustee will have some discretion—i.e., that the trust can be used in setting grandchildren up for life; e.g., as seed capital for a business, a down payment for a home, etc. Consider whether you wish to limit how much each grandchild can access; e.g., funds may be accessed for tech or design school or a Bachelors degree but not for a Masters or Ph.D., so that the funds are more equally shared amongst multiple grandchildren and not depleted by one beneficiary.

How much should be set aside for the trust?

The amount to be held in the trust is up to you; however, if it is only $500, a trust may not be appropriate. If it is more like $50,000 or in the millions, then a trust may be appropriate. Professional advice will ensure you make a well-informed decision.

When and how will the funds be distributed?

To determine the best age to release the funds in the trust, consider the maturity level of the beneficiary. For instance, is it your intent for the trust to be the source of funds for your grandchild’s shiny Porsche at age 18? Although it would require changing your Will, you may decide over time to increase or decrease the age when the beneficiary will benefit from the trust.

You also need to decide whether the trust will be released all at once or as a percentage as the beneficiary attains a certain age; e.g., 20% at age 21, 20% at age 25, 30% at age 30 and the balance at age 35. Your estates and trusts advisor or lawyer will explain your options.

Who is an appropriate trustee?

This is a critical decision, as the trustee must follow the terms of the trust. Will they maintain a good relationship with co-trustees and beneficiaries? Will they invest the trust assets prudently? Will they remain impartial if conflict erupts? Will they keep accurate records and provide the required reporting? Will they be available if the trust is long-term—potentially decades long? A corporate trustee such as Concentra Trust may be a suitable and responsible alternative to naming a family member or friend.

Your ‘Not To Do’ List

Reconsider setting up an informal trust at your local bank or credit union

Informal trusts are a magnet for problems, as they are not considered a true trust. There can be challenges if the person setting up the trust dies. The beneficiary will receive the funds as soon as they reach the age of majority. There is no named trustee who can ensure the funds will be used as you had intended.

Reconsider naming minor beneficiaries on an insurance policy, registered plans, etc.

If you are establishing a trust within your Will, naming a minor child beneficiary on your insurance policy will undo your planning. The court/Public Trustee holds the funds until the child reaches the age of majority and then releases the trust to them in a lump sum. Only by going through your estate will the funds be available to fund the trust.

Consider beneficiaries who are not yet born

Although it may make sense to name your beneficiaries, if your intent is that all your children or grandchildren will benefit from a trust, you may inadvertently exclude future-born children if you name your beneficiaries in your Will. If, however, your goal is to benefit certain individuals only, be sure to include their full legal name in your Will.

There are many factors to contemplate when establishing a minor beneficiary trust. Consider connecting with an estate and trust advisor at Coastal Wealth to answer your questions. We work with Canadians to ensure you have the information you need in determining whether establishing a trust for your loved ones is the right approach.

Recent Posts

Aviso Weekly Market Pulse: April 1st – April 5th

Market developments Equities: U.S. stocks climbed on Friday after a stronger-than-expected March jobs report, but the S&P 500 is still headed for its biggest weekly decline since the first week of the year amid rising geopolitical concerns and hawkish signals from...

Aviso Weekly Market Pulse: March 25th – March 28th

Market developments Equities: The S&P 500 Index saw modest weekly gains, propelling equities to their most impressive first-quarter performance since 2019, bolstered by the latest U.S. GDP figures. These numbers fueled speculation that the Federal Reserve might...

Why, when and how to rebalance your portfolio

Your investment portfolio needs a plan to help you reach your financial goals. Asset allocation is a relatively straightforward investment strategy that can help you to balance investing risks and rewards. An asset allocation strategy establishes the relative...

NEI Monthly Market Insights: February 2024

Markets leap forward in February The market rally continued into February in equities, with resilient economic data and relatively strong earnings reports fueling the S&P 500 Index to new record highs in February, gaining 6.9% for the month. Both the Nasdaq and...

Aviso Weekly Market Pulse: March 18th – March 22nd

Market developments Equities: Stocks experienced a slight decline on Friday, halting the week's rally triggered by the Federal Reserve's commitment to potential interest rate cuts this year. Despite the day's decline, the S&P 500 is poised for its most significant...

Aviso Weekly Market Pulse: March 11th – March 15th

Market developments Equities: The S&P 500 ended the week slightly down, as tech stocks sold off, coinciding with a significant Friday options expiration with approximately $5.3 trillion in options set to expire, adding to the market's volatility. With earnings...