In a previous post, I discussed choosing guardians for your children in your Will.
A Will is also very important for making financial arrangements for your children. In this post, I am talking about children who are under 19 as well as those who might be over 19 but not yet fully financially responsible (who is at 19?!).
To understand how useful a Will is for taking care of children financially, it is helpful to understand what happens if you don’t have a Will and both parents or the only parent dies. In this case, the default is that the Public Guardian and Trustee of BC (the public body in BC that is responsible for protecting the legal interest of minor and adults who need help with decision-making) will manage the money for the child while they are growing up, unless a family member applies to court to become the trustee. During childhood, the use of the money is restricted. When the child turns 19, all of the money must be paid out to the child.
The advantages of a Will with proper trust terms for a child are:
- You decide who will manage the money for your children.
- You can create a lot of flexibility in how money can be used while the children are growing up.
- You can make sure money is held for the child until an older and more financially responsible age than 19.
A trust is simply a legal arrangement where one person – the trustee – is the legal owner of property (home, bank accounts, investments, whatever the estate consists of), and the trustee manages that property for another person – the beneficiary, in this case your children. In many Wills, the executor who does initial estate administration and the trustee are the same person. The trustee is a fiduciary, which means they have to act in the best interest of the beneficiary. The trust terms in the Will lay out how the trust funds can be used.
A typical trust for children will include a discretionary trust for children while they are growing up – that means the trustee can use as much of the trust fund as they think is needed for the child’s care, education and benefit. It is very flexible, and makes sure the trustee can give the guardian the funds they need to raise your child, as well as cover things like education and living expenses for a young adult. The trustee is a gatekeeper of how the money is used. When the child is a young adult, the trustee might say yes to university education but no to the Maserati. Then the trust might set out a staged payment to the child, so that certain amounts will go out to the child to manage themselves at certain ages – for example, 10% at age 23, 20% at age 30 and the balance at age 35. There is no magic on the payout schedule; it depends on the size of the estate, your own values and culture, your knowledge of your child’s personality if they are older. If the child needs more money than the set payouts, that is no problem because the discretionary trust lets the trustee pay money out if they agree with the child’s request.
The decisions you as a parent need to make are:
- Who you want as the trustee. You want someone very reliable, who you believe would have your child’s best interests at heart, and who shares similar values around money. Ideally, you would have at least one primary and one alternate in case something happened to your primary trustee.
- At what ages and percentage you want the funds paid out to the child to manage themselves. Keep in mind that you can always revise your Will later as your ideas change.
If you want (and have the time) to give your trustee a more detailed sense of your ideas about how you would want the money spent, a good way to do this is a separate “letter of wishes” where you can put in as much detail as you like. It is not legally binding, so you don’t have to worry about precisely covering all possible scenarios, and can be a great guide for your trustee.