The experts

Christie Henderson, CA, CFP, TEP
Managing partner, Henderson Partners LLP, Oakville, Ont.

Joelle Adelson, BCL, LLB
Lawyer and mediator, Oakville, Ont.

Client profile
Karen is a single, 60-year-old retired executive with several million dollars worth of assets. Her twin daughters, Sarah and Leigh, are both pregnant. She wants to make sure her daughters and future grandchildren are taken care of, but is unsure how to leave money to unborn children.

The situation

Karen’s husband died last year in a boating accident. Her only family is her daughters, both of whom are married and pregnant. While she was updating her estate plan she found out she has pancreatic cancer and may not live to see her grandchildren born. Karen has a vast amount of wealth, including a $2.5-million home, $1.2-million cottage and two luxury cars. Also, she has $2.3 million in various investments, including RRSPs, GICs, a life annuity, and some blue chips. So how does she create a will that provides for her daughters and unborn grandchildren?

The issues

Wording the provisions: Joelle Adelson, a lawyer who specializes in estate planning, says it’s rare to leave funds to heirs who haven’t yet been born.

“Most people leave the estate to their children. Some people also leave funds to any grandchildren who are alive at the date of death, even if they’re not alive when the will is prepared, but in my experience it is not a common practice.”

The will must define the class of beneficiary (i.e. the grandchildren of Karen, or the children of Sarah and Leigh). There should be no questions surrounding who is included in that class and who is not.

When funds are left in trust to minor children, Adelson adds, clients should include a provision in the will that specifies the inheritance must occur within a stipulated amount of time, or that states how long funds must be held in trust.

The will also must account for what would happen to the inheritance if the grandchildren died before they inherited. “If a child does not survive to that time, then [you should specify that] the gift will go to an alternate beneficiary. Karen needs to consult a lawyer with expertise in estate planning to ensure the wording covers her intentions.”

Christie Henderson, managing partner of Henderson Partners, adds the choice of the estate trustee requires great care because the grandchildren could sue those trustees for mismanagement should they feel the trustees didn’t act prudently or diligently when handling the estate’s assets.

Tax: Since Karen has no spouse, the estate will be liable for taxes when she dies. Karen could buy a life insurance policy with the estate as beneficiary to cover the expected estate taxes, but since she’s been diagnosed with a terminal illness that policy will likely be prohibitively expensive.

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