Your Child Has Turned 18. Do They Need a Will?

Most parents think of wills as something for people with mortgages, grandchildren and retirement accounts. So it can come as a surprise when we suggest that their 18- or 21-year-old child should have a will and powers of attorney too.

We recently met a couple whose two children, aged 18 and 21, still live at home. The older child is at university. Both have been very good savers, and each has more than $50,000 in a TFSA. Both also own shares in their parents’ family company. Neither has a will.

That situation is more common than many families realize. Young adults can own more than people expect: savings, investments, a car, life insurance through a job or school, and sometimes shares in a family business. An accident or sudden illness can leave a child with an estate that has to be administered, or with affairs that someone has to manage while they recover.

Why 18 Is the Turning Point

In Ontario, the Succession Law Reform Act generally requires a child to be at least 18 to make a valid will. There are limited exceptions, such as being married or serving in the military. Turning 18 also changes the parents’ legal position.

Once a child turns 18, parents are no longer their legal guardians. They can no longer make legally binding decisions for their child, and they may not be given the child’s private personal information. That includes health information and financial account details.

For many families, that is the most important reason to act. Powers of attorney often matter even more than the will.

Without a Will: Ontario’s Default Rules

If a young adult dies without a will, Ontario’s intestacy rules decide who inherits. If there is no spouse and no children, the estate generally passes to the parents, and if neither parent is living, to the siblings.

That may sound acceptable for an unmarried student, but it can create problems.

• Common-law partners are left out. A common-law partner has no right to inherit under the intestacy rules, however long the couple lived together. Many young adults are in serious relationships before they think about marriage.
• There is no named executor. Someone has to apply to the court to be appointed. Without a will, the process can take longer and may require additional security, such as a bond.
• Assets may go where the family business doesn’t want them. If a young adult owns shares in a family company, the shares pass according to the default rules unless a will or shareholders’ agreement says otherwise.
• Gifts can’t be personalized. The young adult can’t leave something to a sibling, partner, friend or charity, or say who should take care of a pet.

The Assets Young Adults Often Overlook

TFSAs. Ontario allows a TFSA beneficiary to be named directly on the account. Only a spouse or common-law partner can be named as successor holder, meaning they take over the account itself. For a single young adult, the choice is usually between naming a beneficiary and letting the TFSA fall into the estate. If no beneficiary is named, the TFSA passes under the will, or under the intestacy rules if there is no will. Either way, it is generally subject to probate tax.

Life insurance. Many young adults are covered through an employer’s group plan, a student plan or a policy their parents bought. Beneficiary designations are often filled in quickly at orientation or on a first day at work, and then forgotten. If no beneficiary is named, or the named beneficiary has died, the proceeds may be paid to the estate.

Shares in a family company. This is where planning matters most. When a shareholder dies, they are generally treated for tax purposes as having sold their shares at fair market value, which can produce a capital gains tax bill on their final return. The estate may also have to value the shares. The shares may trigger rights or obligations under a shareholders’ agreement, and they may affect the parents’ own estate and succession plans.

A will lets the young adult name an executor who understands the business and direct where the shares should go. In some cases, a separate secondary will can deal with private company shares so they don’t have to go through probate. The young adult’s planning should line up with the parents’ planning and with the company’s shareholders’ agreement. A family business’s succession plan can be weakened by a 21-year-old with no will.

Bank accounts, vehicles and digital assets. Chequing and savings accounts, a car, a car loan, online accounts and digital content all need to be dealt with by someone who has legal authority.

Powers of Attorney May Matter Most

A serious accident is more likely to leave a young adult injured than to cause their death. If a young adult is in hospital and unable to make decisions, someone needs authority to act for them.

In Ontario, a person must be at least 16 to make a Power of Attorney for Personal Care, and at least 18 to make a Power of Attorney for Property.

• Power of Attorney for Personal Care. This names someone to make health care and personal care decisions if the young adult cannot. Without one, Ontario’s health care rules provide a ranked list of family members who can step in, but not every family situation fits that list.
• Continuing Power of Attorney for Property. This lets a trusted person pay bills, deal with banks and investments, file taxes and manage the young adult’s affairs. Without one, a family member may need to apply to become guardian of property. That is a slower and more expensive process.

For students who study away from home, travel or work abroad, these documents can be especially valuable.

When We Recommend Young Adults Plan

We generally recommend that young adults consider a will and powers of attorney when they:

• turn 18
• start working, especially with group life insurance or a pension through work
• have meaningful savings or investments, including a TFSA
• own shares in a family business or are a beneficiary of a family trust
• move in with a partner
• buy a car or property
• study, travel or work outside Ontario

Planning for a young adult is usually simple and inexpensive compared with the cost of administering an estate without a will, or applying for guardianship.

Where Parents Fit In

Parents can raise the topic, but the will and powers of attorney belong to the young adult. They must be capable of making them and must give their own instructions, which is why we meet with them on their own. Parents can still help a great deal by explaining the family business, encouraging their children to name beneficiaries on accounts and policies, and reviewing their own plans at the same time.

If your family business has young adult shareholders, it is a good time to review the whole picture. That means the parents’ wills, the children’s wills, the shareholders’ agreement and any family trust.

This post provides general information about Ontario estate law and is not legal or tax advice. Please contact us at Smartwills to discuss your family’s situation.