TOO MUCH OF A GOOD THING
It isn’t possible to have too much money, is it? If you really think about it, having too much money early in your adult life, without proper guidance, could lead to a multitude of problems. Studies of people who have won large lottery winnings have shown that sometimes the big win actually did not improve the winner's quality of life, but often the money is blown in a few years.
If you don't give some thought to when your children will inherit your estate, and put this in your Will, your children will inherit, if they are beneficiaries under the Estate Administration Act, upon their reaching the age of nineteen. Even if your estate is small, this could be a problem, but your estate could be much larger than you realize.
Most people are worth more dead than alive when insurance is taken into account. It is not unusual for employment packages to include a multiple of salary as an insurance settlement. Superannuation or other pension funds could be payable in cash upon your death. Mortgages and other loans could be life insured.
If you think about it, most nineteen year olds do not have the social or financial skills to handle large sums of money. We have seen many people inherit sums of money or received insurance settlements at the age of nineteen, which is the age of majority in British Columbia. Inevitably these funds are gone in short order.
So what bad things could come of this? The outcome could in fact be worse than not having any money at all. At best the money will simply be gone and the individual will have to pull up their socks and start over again. At worst, the large sum of money could have encouraged a negative lifestyle such as alcohol or drug addiction. If you have teenagers, you might have some inkling of what the future holds. If you have young children, it will be impossible to predict how they would deal with money should they prematurely inherit a large amount of money.
I am sure that most young people who have burned through a large amount of money when they were nineteen wished that the money had been distributed in a more prudent manner. The way to handle it in an estate context is to provide for a continuing trust past the age of nineteen. A child does not receive the capital of the bequest until the child became 25, 30, or whatever age you deem appropriate. Up until that age, funds can be distributed by the trustee according to the terms set out in your Will. The terms can be specific as to health or education, or they can provide for general discretion to the trustee.
Often general discretion is preferable, because you don't know today what requirements will be in the future. For instance, it might in fact be prudent to provide some of the trust funds to your child to invest in a business, or the trust itself could invest in a business to provide a job for the beneficiary—your child. A further benefit of a testamentary trust is that it has a preferable tax rate to other trusts.
The choice of trustee is important. If there is a business involved, the trustee might have to run the business until such time as the child could take over or the business had to be sold. Of course, it might not be prudent for a child or children to take over a business. There have been many family businesses that have been run into the ground in short order by the next generation.
Trustees need to be independent and financially astute because they will be investing the trust funds, and of course, as the name implies, they must be trustworthy. If your children are older, it is advisable that they know and trust the trustee and respect that person's judgement. It may be unwise to pick the guardians you have named for your children to also be the trustee, because there is a possibility of a conflict of interest. Guardians could provide items for themselves in the guise of providing for the children. Also, because the guardians have to live with the child, it could be hard for them to say "no".
If the trust is for grandchildren, the trustee needs to be young enough to deal with the grandchildren for a long time in the future. It has to be remembered that Wills can take effect tomorrow or twenty-five years into the future. In all cases a trustee appointment needs to be reviewed periodically. Does the trustee still want the job? Is it still an appropriate appointment?
So the next time you hear some sad tale about how some lottery winner's life was ruined by their win, think of how your properly planned Will could alleviate these kind of problems in your child's or other loved one's future.
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