| Sursa dumneavoastr` de Estates si Real Estate Law- ESTATE PLANNING WHEN YOU HAVE CHILDREN|
A good estate plan addresses not only the distribution of the estate assets on death, but also plans for the abilities and needs of each of the testator’s children at the time of the testator’s death.
Here are common scenarios which I help my clients with:
(1) Appointing a guardian for minor children
This is the person who will raise the minor (under the age of 18) children upon the death of their parents. Such an appointment is only active for only 90 days after the death of the parents and the guardian has to apply to court to obtain custody of the minor. The courts respect the wishes of the testator in appointing a guardian and will strongly consider this when granting the final custody. However, if circumstances have changed from the time the will was written and the guardian is no longer an appropriate custodian, the court may make a different decision.
I always like to expand my discussions on this topic with my clients; I first ask why they feel this person is appropriate and then suggest they have a conversation with the guardian to ensure the guardian feels comfortable with the appointment. If the children are old enough to understand what is going on, I even ask my clients to discuss the topic with them and ask them if they feel comfortable with the guardianship appointment.
Any funds over $10,000 which reach minor children will trigger the involvement of the Office of the Children’s Lawyer. Therefore, to avoid this, trusts for minors have to be set up in the Will. A trust is like a basket where assets are placed at the testator’s death. Throughout the years, the trust will make money (from investment interest, rent, etc.) and it will also have expenses which are normally incurred for the benefit of the child (such as housing, food, school supplies, etc.). While the age of majority is 18 in Canada, I encourage my clients to set up trusts until the child is aged 30, because unless the child is unusually mature and financially savvy, they is a chance they will spend it on a larger purchase which does not benefit them in the long run (a very expensive car, for example).
A Henson Trust is used when the child is on the Ontario Disability Support Program (ODSP). Using this trust will never vest the money in the child (in my earlier example, the funds would vest at the age of 30), but will continue to pay the child an amount of money under the prescribed limit of the Ontario Disability Support Program Act. If the child receives income or assets over the prescribed limit, they will become ineligible to receive ODSP support payments, and a Henson Trust circumvents this situation.
In both scenarios, the trust will be administered by a trustee (as a recommendation, a person whom you trust to handle your finances) in accordance with the conditions of the trust which can be found in the Will.
(3) Blended Families
I always ask my clients if they have re-married or are no longer in a relationship with the parent(s) of their children. This is important to know from an estate planning perspective because court challenges likely arise in these situations. The classic scenario is a father who has re-married and leaves the majority of his assets to his new wife, and very little to his children from his first marriage. Does this seem unfair? Sure. Does the father have this right? Absolutely. If the children and first wife are no longer dependents, he can leave his estate to whoever he wants. This principle is called “testamentary freedom” and it is very strongly withheld by courts. However, the courts also look at suspicious circumstances. Undue influence (whether anybody influenced the testator), coercion (whether anybody pressured or intimidated the testator), mental capacity issues and any other relevant circumstances are all factors which the courts will look at, especially if the testator had a great relationship with his children, had executed a previous Will which left his children a larger part of his estate, and suddenly changed his mind.
(4) Adding a child to the title of the parents’ home
While it may seem like the ultimate estate planning scenario and tax-saving opportunity, there are many disadvantages to doing this:
- The relationship between the parent and the child may distance over time, and the child may take unilateral actions to the detriment of the parent
- The transfer may be considered a disposition for income tax purposes
- Capital gains will accumulate if the child does not live in the property
- The child’s interest in the property can become subject to claims by the child’s creditors
- If the child is married, the property could be subject to claims by the child’s spouse in case of a marriage breakdown
- If there are other children who were not added to title, this can result in a major dispute; the other children can bring a claim in court arguing that the child was holding the property in trust for the parent
- The parents cannot sell or mortgage the property unless the child agrees
This are not always clear cut, and having a good estate planner to walk you through potential risks which you have not even thought about is very valuable. That’s why the “planning” part of an estate plan is even more important than the “drafting” part!
If you have any questions about this topic, I would love to help!
PLEASE NOTE THAT THE CONTENT OF THIS BLOG IS MERELY FOR INFORMATION PURPOSES AND DOES NOT CONSTITUTE LEGAL ADVICE.
Raluca M. Soica, BBA, CPA, CMA, JD
Barrister & Solicitor
Raluca M. Soica, BBA, CPA, CMA, JD 6/14/2021