When one thinks of a “trust fund baby“, images of a lavish lifestyle supported by family wealth probably come to mind. But with the images likely comes the sad realization that such a lifestyle will not be enjoyed be you; either you are born into such wealth or you are not. But is this necessarily true? Could you be adopted into a trust, and with it adopt the lifestyle of a trust fund baby? If a trust has been set up which provides that the beneficiaries of the trust are to be the issue (i.e. children) of a specific individual, if such an individual legally adopts you, would you become a beneficiary of the trust?
In Ontario, the legal status of adopted children is governed by the Child and Family Services Act (the “CFSA“). Section 158(2) of the CFSA provides that, for the purposes of the law, upon an adoption order being granted the adopted child becomes the child of the adoptive parent and ceases to be the child of the person who was his or her parent before the adoption order was granted.
With respect to the question of whether an adopted child gains status under any will or trust, section 158(4) of the CFSA provides:
“In any will or other document made at any time before or after the 1st day of November, 1985, and whether the maker of the will or document is alive on that day or not, a reference to a person or group or class of persons described in terms of relationship by blood or marriage to another person shall be deemed to refer to or include, as the case may be, a person who comes within the description as a result of an adoption, unless the contrary is expressed.” [emphasis added]
Simply put, so long as the will or trust deed does not specifically preclude adopted children from becoming included as part of any class of persons described by relationship by blood or marriage, an adopted child would be treated no differently than a biological child in determining who forms part of such a class. As a result, presuming that the trust in question does not bar adopted children from becoming beneficiaries, should the wealthy individual contemplated in the hypothetical above legally adopt you, you would become a beneficiary of the trust.
Your dreams of living as a trust fund baby may not be over yet. Thank you for reading.
An article that appeared in the Wall Street Journal this past weekend highlights an important issue that is often overlooked when individuals plan for the distribution of their wealth after death.
The article suggests that 70% of wealth inherited by a younger generation is lost, and that, by the time that the inherited wealth makes it to a subsequent generation, only 10% of its original value typically remains.
In Canada, where 40% of individuals rely on a family inheritance to fund their retirement, such poor rates of intergenerational wealth preservation could present a serious problem.
In addition to obtaining formal lawyer assistance in creating a formal estate plan, the article refers to a new approach to preserving wealth called “heritage design”.
Heritage design uses “pre-inheritance” intergenerational experiences to foster the preservation of family wealth. This approach, which supplements estate planning, involves annual meetings with the testator and his or her beneficiaries, at which time family values and traditions are reinforced and younger generations learn how to manage funds which they can expect to eventually inherit.
Family meetings during which an estate plan is discussed and explained to beneficiaries has the potential not only to assist in the preservation of family wealth from generation to generation, but also can help prevent disputes over the intended distribution of an estate after death.
Thank you for reading.
Listen to Talking About Wealth and Personal Finance.
This week on Hull on Estates Suzanna and Ian review the pullout in March 18th’s New York Times and talk about the importance of dialog before and after death.