Estate Planning: Trustees and Beneficiaries

We’ve recently come across the following question on a Canadian personal finance group: “Is there someone that could chat with me about naming a minor beneficiary (under age) with a trustee, vs naming the person I would use as a trustee as a beneficiary?” In this article, we’ll break down the question and legal answers in simple terms.

What is a Beneficiary?

In the estate planning context, a beneficiary is an individual or entity, like a charity, designated to receive assets in a will. They receive the specified assets according to the terms of the will. Anyone can be a beneficiary, but will writers should be advised that some provinces require that dependents such as children (and adult children) are provided for adequately in the will. 

What is a Trustee?

A trustee is a person appointed to manage and give out assets on behalf of a beneficiary and on the terms of the will. The trustee has a duty to act in their best interests. Trustees can be individuals, such as family members or friends, or professional entities like banks, accountants or lawyers. Their responsibilities may include investing and managing assets, distributing income or assets to beneficiaries, and ensuring compliance with relevant laws and regulations.

Naming a Would-Be Trustee as a Beneficiary

There are a number of key differences between beneficiaries and trustees which are relevant to this question. The most important difference is their relationship with and responsibility to the estate. Because trustees have a duty to beneficiaries to protect the assets and give out their inheritance on the terms of the will, naming a would-be trustee as a beneficiary will not save you any time or money. The would-be trustee would likely be found to hold the asset on constructive trust if you have made your intentions for the asset clear, meaning it makes little difference to name them as a beneficiary rather than trustee. In fact, it could give rise to litigation over the assets in the long-run or risk mismanagement of the assets. 

Naming a would-be trustee as a beneficiary of assets with the intention of those assets to ultimately go to another person is not an effective way to bestow a gift in your will.

Handling Estate Inheritance to a Minor Beneficiary

Estate planning for those with minor children, dependents or loved ones can feel complicated or stressful. While you may want to ensure their financial well-being after your passing, many people worry about entrusting a lump sum of funds or a high-value asset to a young person who might not be ready to maximize the benefits of such a gift. Fortunately, estate planning lawyers can use a variety of tools when crafting a will to ensure that you pass down assets to minors exactly as you intend. The most common tool is the trust, which holds assets for beneficiaries on specific terms decided by the will writer. The trustee actively manages the assets and cares for the beneficiary until transferring the trust assets to them.

A typical provision in BC wills contains instructions for handling estate shares designated for a minor child. For example, it may state that inheritance minors will be held on trust, paying out fully when they are older. Other common clauses might include instructions to pay out when the child graduates university or buying a home. Using the trust, the will writer has control over how and when the minor beneficiary will receive their inheritance.

Appointing a Trustee for a Minor Beneficiary

When creating a trust for a minor, it’s a good idea to choose a trustee who knows them well. Some will writers choose to hire a professional trustee to oversee the assets and release the trust funds. Naming your potential trustee as a beneficiary can complicate expressing asset management wishes in the will. This might necessitate separate documents for clear terms between the trustee and ultimate beneficiary. 

Naming a minor beneficiary in a will and appointing a trustee is a common part of the estate planning process. If you’re looking for guidance on estate assets going to a minor beneficiary, contact an experienced estate planning lawyer today.