If Grandpa leaves big money to little Bobby, it doesn't mean your child is going skateboarding with wads of cash stuffed in his baggy jeans. As Foster explains, children can't legally own assets or property until they reach the age of majority. It's important, she says, to set up a testamentary trust in the will. "If you don't set up a testamentary trust in your will for anything that a minor will inherit," says Foster, "what he or she would inherit is held by the public guardian and trustee of your province. And then when the person turns 18 or 19, depending on which province you're in, he or she gets a cheque to do whatever with."
Not everyone, of course, thinks it's a good idea to drop a pile of cash in a teenager's lap. Some wills stipulate the teen will get money little by little. "If it's $100,000, maybe you appoint the parent or another responsible person to manage it until the age of 21," says Courtney. "If you're still not comfortable, perhaps at 21 the person gets a small portion, and the rest at age 25. The bigger the sums, the longer the staged payout."
Beneficiaries who are disabled It can be just as critical to set up trusts for loved ones who are disabled. If they inherit money, people living on social assistance and on disability pensions are at risk of losing their government benefits. "The best way for families to provide for the financial and social well-being of a relative with a disability is to establish a discretionary trust," says Al Etmanski, president of the nonprofit organization Planned Lifetime Advocacy Network. "The trust is not deemed an asset of the individual, and therefore he maintains his eligibility for government benefits."
Another option is the registered disability savings plan (RDSP). It will allow anyone to invest for a relative or friend who has a disability and is 59 or younger. "The RDSP is breathtaking in its appreciation for the concerns of people with disabilities and their families," says Etmanski.
A gift to last
Financial advisers agree that planning ahead is smart. If you expect to receive an inheritance one day, it's a good idea to talk it over with your parents. "Just knowing what Mom and Dad would have wanted for that money relieves a lot of stress," says Black Hughes. Being a beneficiary can come with red tape, rigmarole and wrenching emotion. But with careful planning, an inheritance can turn into a gift that lasts. Julia, for one, is sure of that. "When I open my eyes, I know that I am in this house because of my grandparents," she says. "That feeling never goes away."
Inheritance and divorce
Things can get dicey when it comes to inheritance and divorce, cautions Georgialee Lang, a family lawyer in Vancouver. If you are in a shaky marriage and inherit money, Lang recommends keeping it separate from the family assets. "Open up a new bank account in your name alone," says Lang. The laws vary somewhat from province to province, but in most parts of Canada, keeping your inheritance money separate from marital assets gives you a good chance of keeping it all in a divorce.
If you use even a portion of the inheritance cash for trips, mortgages or other family expenses, Lang says the courts could decide the inheritance is a marital asset and award a chunk of it to your ex. If you inherit a house, it becomes family property if you and your spouse move in. "Anyone receiving an inheritance may want to seek legal advice on how best to structure it, given the high divorce rate, even later in life," says financial expert Sandra Foster. "I'm amazed at the number of people who get divorced between the ages of 50 and 60."
*Names have been changed.
This story was originally titled "Sudden Wealth: Inheritance Dos and Don'ts" in the November 2008 issue. Subscribe to Canadian Living today and never miss an issue!
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