Inheritance Held in Trust Until a Child Reaches a Set Age in Ontario

Many parents and grandparents leave money to a child on the condition that it is held until the child reaches a certain age. If you are the child's parent or another beneficiary, you may wonder who controls the money in the meantime and when it is paid out.

This article explains in general terms how these trusts work in Ontario. The details depend on the exact wording of the will, so it is worth having a lawyer read it.

How a child's inheritance is held

A child cannot usually manage a large sum of money alone. A will often says that the child's share is held by a trustee until a stated age. The trustee looks after the money and pays it out as the will directs.

Estate trustees carry out the wishes in the will, wind up the deceased's affairs, pay taxes, bills and other debts, and then distribute the estate according to the will. Where a will creates a trust for a child, the will's terms control what happens after that point.

When the money is released

The will sets the age or event. Some wills pay everything at one age. Others pay in stages, or let the trustee pay for education or living costs earlier. Whether a gift is vested right away or only at a later age affects who receives it if the child dies first.

A beneficiary who survives the testator generally passes their share to their own estate, unless the will imposes a survivorship condition. Wills may also contain survivorship periods or gifts that vest only at a later age, so the result turns on the wording and should be checked before anyone assumes the answer.

Who else may be involved

If a beneficiary is a minor or an incapable adult, the probate application may also need to be sent to the Office of the Children's Lawyer and the Office of the Public Guardian and Trustee. This is an extra layer of notice meant to protect people who cannot protect their own interests.

A person applying for probate must also send or give a copy of the application to everyone entitled to a share of the estate before filing it with the court.

Taxes and benefits

• The CRA lists most gifts and inheritances among amounts that are not reported or taxed.
• If a trust earns income and allocates it to a beneficiary, the trust uses a T3 slip, and in most cases the allocated amount is included in the beneficiary's income.
• If the child or a family member receives ODSP, the recipient and each family member can receive up to $10,000 in total in a 12-month period from gifts, inheritances, trust and life insurance payments and lottery winnings without affecting income support.
• Amounts above $10,000 count as income in the month received, unless they are used for an approved disability-related item or service.
• An inherited trust set up in a will is not considered income for ODSP.
• Up to $100,000 of a trust may be exempt as an asset for ODSP if the trust was funded by an inheritance or life insurance. Inherited money placed in a trust within six months may also qualify for this asset exemption.

ODSP amounts change from time to time, so confirm the current rules with ODSP or a lawyer.

What to do next

• Get a copy of the will and read the trust clause closely.
• Find out who the trustee is and ask how the money is invested and reported.
• Ask what the trustee may pay out before the stated age, such as for school.
• If the child receives benefits, ask a lawyer before any money is paid out.
• Keep records of any payments made for the child.

If you think the trustee is not following the will, speak with a lawyer about your options.

Frequently asked questions