When a person dies without leaving a valid will, they have died “intestate”. A valid will can provide for who should administer the estate, who should benefit from the estate, and the terms on which the beneficiaries inherit. If you die without a will in place, your estate will be governed by intestacy laws which may not reflect your wishes.
For example, in Ontario the Estates Act R.S.O. 1990, c. E.21 provides to whom administration of an intestate estate should be granted (the married spouse or person who was in a conjugal relationship with the deceased immediately prior to his or her death, or next-of-kin) and the Succession Law Reform Act, R.S.O. 1990, c. S.26 governs who is entitled to inherit from the estate (typically a division among your spouse and/or children, as applicable).
What happens to a minor’s inheritance?
Minors cannot be paid funds or be transferred property until they reach the age of majority, including gifts from an estate, regardless of whether there is a will, or proceeds payable from a life insurance policy or registered plan.
Typically, a will provides that a minor’s share in the estate is to be held in trust by named trustees along with other terms as to when or for what reason payments from the trust may be made for the minor’s benefit. The trust may also continue after the minor beneficiary attains the age of majority to protect against a young adult coming into significant amounts of money before they are financially mature enough to manage it.
However, an intestacy presents unique complications for a minor beneficiary. If a minor inherits on an intestacy the above trust structure does not exist, and because the inheritance cannot be paid or transferred directly to the minor, few options are available.
Inheritance Under $10,000
In Ontario, if the inheritance or gift is equal to or less than $10,000 the funds can be paid to the minor’s parent or guardian. In doing so, the executor of the estate is no longer liable for what happens to the funds.
Funds Paid into Court
For amounts greater than $10,000, a minor’s inheritance can be paid into court and held by the Accountant of the Superior Court of Justice until the minor reaches the age of majority, which is 18 years in Ontario. The Accountant will invest the money at a rate to be determined dependent on current market conditions. For minors, money is automatically invested in the Office of the Public Guardian and Trustee’s (“OPGT”) Fixed Income Funds and interest is credited to the minor’s account each month at a prescribed interest rate that is based on its earnings.
Notably the returns from such investment may be less than what could have been earned if invested in the market by a trustee with the benefit of professional investment advice. Further, money held by the Accountant is charged 3.0% for each of monthly receipts and disbursements on capital and income and a Care and Management Fee of 3/5 of 1% (0.6%) of the average annual value of the trust is charged monthly.
If the minor requires money before they reach 18, a request can be made to the Accountant for consideration, with the approval of the Children’s Lawyer, whose Office represents the minor’s interest in such matters. Approval is dependent on providing proof that the money paid out will be used for the direct benefit of the child, that the parents or caregivers are unable to meet the needs of the child without assistance, and submission of supporting documentation. While this is an established process, it is far more arduous, time consuming and expensive than having a trustee disburse funds in their discretion under a trust.
Appointment as Guardian of Property
Alternatively, an individual can apply to court to become guardian of the minor’s property and can then receive the inheritance on the minor’s behalf. However, this process is not merely a formality— a court application is required to obtain a court order appointing the person to be the legal guardian. Importantly, a minor’s parent is not at law automatically considered the guardian of their minor child’s property and must make a court application to be appointed.
The guardianship application process can be lengthy, costly, and quite cumbersome. The parents of a child are equally entitled to be appointed as guardians, however, when there is conflict the court considers the ability of the applicant to manage the property, the merits of the proposed management plan for the investment of the minor’s funds and the views of the child in coming to a decision. Further, for a large inheritance, the court may require that an insured professional, like a trust company, act as guardian.
Guardianship applications require a management plan in a prescribed court form. The management plan sets out a detailed financial plan and a proposal of how the guardian will manage the minor’s money. The Children’s Lawyer must review and approve of the plan. Family members of the minor must also be served as part of the application, which may result in a dispute and litigation if multiple individuals seek guardianship. During this process the minor’s funds cannot be accessed which can be prejudicial and cause hardship to the child if such funds are needed immediately.
Moreover, the work does not stop when the guardian for property is appointed. The guardian must follow the approved management plan and can only spend the minor’s money as directed in the court order or approved management plan.
Guardians also function as fiduciaries, and must keep detailed records of their accounts, and often are required to pass their accounts periodically before the court. If the guardian wants to deviate in any significant way from the approved management plan, court approval is necessary.
In the case of an intestacy, whether the funds are paid into court or if a guardian is appointed, when the minor reaches 18 years of age, their inheritance (or what remains) is not subject to any protective trust provisions and is paid to the minor in full to do with as they wish. That could mean a trip around the world, purchasing a luxury car, or paying for university tuition—what would you have done at 18?
As you can see, dying intestate when there are minor children or other beneficiaries creates serious problems and expense. Proper planning is critical to ensure that the financial safety net you leave behind for minor beneficiaries is properly structured; including provisions in your will or an insurance trust for insurance policy proceeds where a minor is a beneficiary.
— Nicholas André