If you are thinking of leaving money to one or more minor (under 18) children, you may be facing an issue similar to that of a client of our Ottawa firm. Trudy (not her real name) met with me last week in my office in Ottawa near Stittsville. Trudy never married and had no children. However, she was a fond aunt to her sister’s two children whom she adored.  She’d always been very close to them. Trudy decided that if something happened to her, she’d want her estate to go her two nieces to help them to get a good education and get started in life.

trust for children
Leaving money to a minor? Consider a trust!

Trudy explained to me that because the children were still minors, she planned to just leave her estate to her brother (her sister not being that good with money) on the understanding that he would keep the money for the girls and give it to them as he saw fit. She had already discussed this with her brother and he was willing to hold the money for the girls.
I explained to Trudy that leaving her nieces’ inheritances directly to her brother creates something called a ‘secret trust’ which is highly problematic despite their good intentions. In order to achieve Trudy’s estate planning goals, I recommended that she include a properly drafted trust in her Will which would ensure her nieces could benefit.  Trudy could name her brother as the trustee of the trusts so that he could manage the money in the trust for the children.
I explained to Trudy that, among other things, a secret trust could create a tax problem for her brother. Also special tax benefits that could be available to the trust if it were properly set up could be lost. I advised her that one of the problems that could arise when there is a secret trust is what happens if her brother becomes incapable or dies before one or both of her nieces.  If that were to happen,  the funds could be considered as belonging to her brother and would be managed for his benefit and for his family’s benefit rather than for her nieces as she intended.
From a practical standpoint, leaving the funds outright to Trudy’s brother in a secret trust also does not provide him with the necessary authority and discretion to manage the funds for the nieces. With a trust  in her Will, we could include clauses that let her brother, as trustee of the trusts, properly and efficiently manage the trusts ensuring Trudy’s goals would be achieved and giving the trustee, her brother, discretion to use the funds to benefit the nieces in the best way possible. In addition, Trudy could appoint an alternate or backup trustee who could take over if her brother isn’t able to act for any reason.
If you plan on leaving money to a minor child and were considering the secret trust route, make an appointment with one of our Ottawa lawyers today. We will explore with you why you should avoid secret trusts and explain how a properly drafted trust for the children in your Will can best achieve your estate planning goals.

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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