All About Estates

When is “old enough”? Choosing an age for estate distributions

I often meet with clients who wish to have Wills prepared which provide for trusts for their children. After explaining the nature of a testamentary trust to the clients, I typically recommend that they select a set age that the child is to receive the capital (or the remainder thereof) of his or her trust, with perhaps additional set ages for partial distributions.[1] In the vast majority of these meetings, I am inevitably asked some variation of, “What do people normally do?” with respect to choosing an age.

As with nearly all elements of an estate plan, there is no “normal”. Instead, I recommend that clients consider the following:

1.  The maturity of the child.

To a certain extent, the ability to gauge the maturity of a child will largely depend on the current age of the child – it is much easier, for example, to determine the majority level of a 22-year-old than that of a five-year-old.

That said, there are considerations beyond the numerical age of the child that should be taken into account. How does the child currently handle responsibility? Are they generally able to meet their financial obligations, and make wise decisions with respect to money? Are they reliable?

When in doubt (or when a child is too young to make an determination), selecting a higher age for distributions, with flexibility granted to the trustees to make early distributions, is a preferred strategy to setting too young of an age and having an estate distributed before a child is ready to handle the responsibility that comes with the assets.

The client may also wish to provide a small amount of capital of the trust (1/10 or 1/4, for example), to be paid out at an earlier age, to give the child an opportunity to learn and make mistakes with money, before receiving the entirety of his or her inheritance.

2.  The value of the assets held in trust.

The general logic of this consideration is that the greater the value that is held in trust, the older the child should be before it is distributed. This is not, however, a hard-and-fast rule: a mature 25-year-old may be better equipped to handle several million dollars than an immature 30-year-old is with several hundred thousand dollars.

I find it helpful for clients to do a quick calculation of how much their estate would be worth in today’s dollars, taking into account all relevant assets (including any insurance proceeds that may be held on the same trust terms for a child), and then dividing this amount by the number of children they have. This often puts things into perspective – more often than not, there is more money to be set aside for a child than the client realizes.

3.  The longevity of the trust.

The above considerations should be balanced with the cost and administrative burden of holding a trust for an extended period of time. For example, if a client wishes to include a trust that is held until age 50 for a child who is currently four, there is the potential for a trust that is held for 40+ years. This is a long time for a trustee to have to make investment decisions, report to the beneficiary, and file annual tax returns. In addition, testamentary trusts are subject to a deemed disposition every 21-years.[2] Finally, clients will need to consider alternate or replacement trustees, as their named trustees could pass away or otherwise no longer wish to act by the time the trust reaches its later years.

None of these points necessarily mean that the client should choose a different age. As with point 1 above, it may make sense, taking into consideration the maturity of the child, and the value of the potential distribution, to select a higher age, but allow for earlier distributions at the discretion of the trustees. However, the client needs to be aware of what it truly means to include a long-term trust in his or her Will.

One other consideration – when discussing the above points, I sometimes find it helpful to ask the client to reflect on his or her own life: at what age could he or she have handled an inheritance? It can help the client transform their understanding from a hypothetical discussion about when their currently-young child will inherit, to a real consideration of what it means to be a certain age and what the average person can handle.

 

[1] There may be situations where a lifetime trust is appropriate – for example, a Henson trust, a trust for protection against claims of creditors, or where a client wishes to ensure capital remains for the benefit of the next generation (grandchildren).

[2] With limited exceptions, such as a spousal trust.

About Emily Hubling
Emily Hubling is an associate in the Trusts, Wills, Estates and Charities group at Fasken. Emily has experience in advising estate trustees in administering a range of complex estate matters, including intestacies, cross-border matters, and contested estates. Working closely with clients’ advisors, Emily prepares Wills, Powers of Attorney, and Trusts to assist clients in fulfilling their unique estate-planning objectives.

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