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?

Degree of difficulty

9 out of 10. To develop an estate plan that meets Karen’s goal, her advisor will need to partner with a lawyer who has tax and estate planning expertise. And the estate will require prudent tax and investment management to provide for the daughters and 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.

The 21-year rule, which deems properties are disposed of for estate purposes every two decades, will also cause problems in this case. Since the grandchildren are unborn, they will face capital gains taxes as beneficiaries shortly after reaching the age of majority—not a comfortable situation for people just beginning to deal with money. And if any beneficiary has not reached the age of majority, the trust will pay the taxes, so the trustees need to manage the estate’s investments properly so there’s cash on hand.

Trusts: Canadian estate laws prohibit children from directly inheriting if they’re not considered adults in their provinces (see “Provincial ages of majority,” this page). Since Karen’s grandchildren haven’t been born, the trustees will have a long-term commitment before the funds can be distributed.

Because it’s difficult to determine the length of time needed to administer the bequests for the grandchildren, paying a corporate trustee might be in the family’s best interests. Experts estimate this would cost between $5,000 and $10,000 per year, or less than 1% of the portfolio’s value, assuming the funds were invested in low-risk assets.

“The people managing the trust will need to be knowledgeable, and should not be in a conflict-of-interest position so they can make an independent decision about how the assets should be managed until the beneficiaries become entitled to it,” adds Henderson.

Further, Karen must specify if she wants to limit access to the grandchildren’s funds after they become adults, since it can be overwhelming to receive a large sum all at once.

Provincial ages of majority
British Columbia 19
Alberta 18
Saskatchewan 18
Manitoba 18
Ontario 18
Quebec 18
New Brunswick 19
Nova Scotia 19
Prince Edward Island 18
Newfoundland and Labrador 19
Nunavut 19
Northwest Territories 19
Yukon 19

Source: Government of Canada

“Karen can specify when and how much a beneficiary can have—for example, a third of the value at age 25, and two-thirds at age 35,” says Henderson. “Alternatively, she can specify how the funds may be used by the beneficiary—for instance, to pay tuition. She can also specify whether both principal and income are to be used, or income alone, and how the funds are to be invested.”

The solution

After consulting with an estate planning lawyer, Karen is leaving her estate to her daughters and has budgeted for estate taxes. Her will now states that a portion of the inheritance should fund RESPs for the grandchildren.

Client acceptance

2 out of 10. Karen was surprised to learn how complex her desire to provide for her grandchildren turned out to be. Her advisor pointed out the challenges of maintaining an estate indefinitely and in the end she opted to go with a simpler estate plan. Her daughters have assured her they will respect her wishes for the RESPs.

Spending on a will is a good investment

DIY will and power of attorney kits are readily available and purport to save hundreds in legal fees. Here’s what your client needs to know about these products.


Only some provinces in Canada recognize holographic wills.


DIY kits are generic and do not cover situations such as second marriage or allowing for secondary beneficiary designations.


DIY wills should have two witnesses. However, if a named beneficiary witnesses the will, it could be declared invalid.

An estate lawyer will usually raise concerns the client may not have considered. Having a professional draft the will also ensures the format is valid in the province where the testator resides, so paying up front now can save thousands in legal fees later.
Source: Joelle Adelson

Lisa MacColl is an Ontario-based financial writer.