Leaving an Inheritance to Minor Children in BC: Trusts vs the Public Guardian

Parents and grandparents often leave money to young children in a will without thinking about who will hold it. In BC, a person under 19 cannot simply be handed an inheritance, so the law decides what happens if the will does not.

This article explains what happens when a minor inherits in BC, the role of the Public Guardian and Trustee, why the money is usually released at 19, and how a trust in your will can give you more say over who manages the funds and when your children or grandchildren receive them.

A minor cannot simply be handed an inheritance

In BC, a person reaches the age of majority at 19 under the Age of Majority Act. Until then, a child generally cannot take charge of an inheritance themselves, so someone has to hold the money for them. The question is who, and on what terms.

If your will names a trustee and sets out how a child's share is to be held, that person manages it. If it does not, the Wills, Estates and Succession Act (WESA) fills the gap.

What WESA does if there is no trust

Under WESA section 153, if a minor is a beneficiary or an intestate successor and there is no trustee or trust for the minor's interest, the executor must pay or transfer the minor's share to the Public Guardian and Trustee (PGT) in trust for the minor when the estate is distributed. This applies whether the child is named in a will or inherits because there is no will. Our article on dying without a will in BC explains when children inherit under the intestacy rules.

Section 153 also covers property other than money. The PGT may convert it to money, transfer it to the minor, or decline to accept it and recommend that the court appoint a trustee to manage it until the child turns 19. Alternatively, before distribution, the court can appoint a trustee on an application made with notice to the PGT. That route requires a court application.

What the Public Guardian and Trustee does with the money

The PGT is a provincial office that, among other roles, manages assets held in trust for children and youth under 19. According to the PGT, it assigns a guardianship and trust officer to each child's trust, invests the funds, and reviews requests for money from the child, parents or guardian.

Under section 14 of the Infants Act, the PGT may authorize payments from money it holds for a child's maintenance, education or benefit, subject to the terms of any will or trust deed. Under section 43, the net funds and income are paid to the young person on application once the PGT has proof of identity and that the person has reached 19, or the later date set in the governing document. The net amount is after commissions and charges permitted under the Public Guardian and Trustee Act and its regulations.

For many families, the issue is not that the PGT will mismanage the funds. It is that:

• Your family does not choose the manager. A provincial office, not a person you selected, makes decisions about requests for money.
• The full amount is released at 19. Many parents would prefer staged payments or a later age for a large sum.
• Requests go through a process. Parents or guardians must ask for funds for the child's needs, rather than having a family trustee decide.

The probate step: notice to the PGT

A minor beneficiary also affects the probate application. Under Rule 25-2(8) of the Supreme Court Civil Rules, notice of the application must generally be delivered to the PGT as well as to the child's parents or guardian. Where the PGT has been given notice, WESA section 124 says the grant cannot issue until the applicant provides the PGT's written comments, unless the court orders otherwise.

Rule 25-2(9) has a narrow exception: notice to the PGT is not needed if the applicant is the executor, the will creates a trust for the minor and appoints a trustee, and the minor is not the deceased's spouse or child. So for your own children, the PGT still receives notice even if your will sets up a trust.

A testamentary trust: what you can decide

A trust in your will lets you set the terms instead of relying on the default rules. Common choices include:

• Who manages the money. A trusted family member, friend or trust company, with an alternate in case your first choice cannot act.
• When the child receives it. For example, part at 19 and the rest at 25, or the income first and the capital later.
• What it can be used for. Broad powers to pay for education, housing, health care and general support before the final payout.
• How shares are divided. One pooled fund for all children, so money can follow need, or separate shares for each child.
• Grandchildren and future children. Wording that covers grandchildren born after the will is signed.

A trust needs careful drafting. Vague terms, an unsuitable trustee or no alternate can create the very problems the trust was meant to prevent.

Guardian of the child is a separate decision

The person who looks after your child day to day and the person who manages the child's money do not have to be the same. Under section 53 of the Family Law Act, a guardian can appoint a person to be the child's guardian on the guardian's death, including in a will. Many parents name a guardian for care and a different person as trustee, so that there is a check on how money is spent.

Do not forget assets that pass outside the will

Life insurance, RRSPs, RRIFs and TFSAs often pass by beneficiary designation rather than under the will. Naming a minor directly on these can lead to the same problem of who holds the money. Ask about naming a trustee for a minor on the designation, or directing the proceeds to the trust in your will. Our article on when to update your will covers other life events that should prompt a review.

Leaving money to children or grandchildren? Set up the trust in your will

Our wills and estate planning lawyers can review your current will, explain your options for children and grandchildren, and prepare a will with trust terms and guardian appointments that suit your family.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.