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estate planning grandchild trust

How Not to Leave a Gift to a Grandchild Upon your Death

estate planning grandchild trustI’ve named my little granddaughter as the beneficiary of my life insurance policy but with her dad, my son, as the trustee.  He’ll have full control, won’t he?”

I get asked the above question time and time again. The answer, in short, probably not to the extent you think he will.

At our law office in Stittsville near Ottawa, many of our estate planning clients are grandparents who want to leave a gift to a grandchild on their death.  They may have heard from other grandparents or their insurance agent that naming their son or daughter to receive and hold life insurance proceeds in trust for a grandchild is a good way to make sure the grandchild inherits from them while avoiding probate fees and other problems.

The Problems with a ‘Bare Trust’

Unfortunately, if insurance proceeds are paid directly to a son or daughter as a trustee to hold in trust for a young child (a ‘minor beneficiary’), a ‘bare trust’ is created. This kind of designation is often made on the insurance company’s beneficiary designation form. These forms are designed to name a trustee and the beneficiary and don’t leave enough space to spell out the terms or conditions as to what the trustee can do with the money.

When insurance proceeds are held for a minor in a bare trust, Ontario law requires that the funds be held and invested by the Trustee until the minor beneficiary turns 18. At that time, the Trustee is obligated to hand over the funds to the minor regardless of his or her ability to handle money. Accessing the funds held in a bare trust while the beneficiary is under 18 is possible but can be difficult. The Trustee may also be required to file income tax returns to report trust income.

‘Estate’ as Beneficiary

For small amounts of insurance, a bare trust may be sufficient. However, for larger amounts, we recommend that the client’s estate be named as the life insurance beneficiary even though probate fees may have to be paid. With the insurance proceeds coming to the estate, a properly drafted trust included in the client’s Will can provide the Trustee of the minor’s trust much more flexibility as to how the trust is dealt with including when and how much money is paid to or for the minor.  By holding the insurance proceeds in a trust in a Will, the Trustee can be given the power to hold the insurance proceeds beyond the age of 18 until an age when the beneficiary is more mature and better able to handle the money.

If you are a grandparent and want to benefit one or more of your grandchildren upon your death, call (613-836-9915) or email ( to make an appointment to meet with me at our Ottawa office. We will review your unique situation and estate planning goals and discuss the available options to best provide for your loved ones.

Reproduction of this blog is permitted if the author is credited.  If you have questions or if you would like more information, please call us at 613 836-9915. This blog is not intended to be legal advice but contains general information.  Please consult a lawyer or other professional to determine how the information in this blog might apply to you.

Blog posts pre-dated December 1, 2015 were originally published under Neff Law Office Professional Corporation.

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