Children s Trust Funds Dunning Place
Children s Trust Funds This booklet has been developed to help parents and guardians understand the role and responsibilities of the Public Guardian and Trustee. It is intended to address a broad range of questions, and may not deal with specific issues with respect to your child s trust. If you would like any additional information, please feel free to contact the Public Guardian and Trustee. Introduction The Public Guardian and Trustee operates under provincial law to protect the legal and financial interests of children. This includes reviewing and approving personal injury and The Fatal Accidents Act settlements, monitoring executors of estates with minor beneficiaries, and monitoring trustees who are holding money in trust for children. The Public Guardian and Trustee ensures that children are properly represented in legal actions where the child is in the care of the province or where the child s interests are in conflict with those of the parent or guardian, or where there is no guardian. In addition, the Public Guardian and Trustee receives and administers funds to which children are entitled. When does the Public Guardian and Trustee get involved? In Saskatchewan, the parents of a child are the property guardians for their child. However, they do not have the authority to hold money to which their child is entitled unless they have furnished security with the Court, or obtained a court order dispensing with the need for security. The Public Guardian and Trustee Act gives the Public Guardian and Trustee the authority to receive and administer funds to which a minor is entitled, if a parent has not been given that authority by the Court. Some circumstances where the Public Guardian and Trustee will receive money for a child are: 1
Permanent impairment, loss of studies, wage replacement or death benefits payable by SGI; Proceeds from a lawsuit related to an injury claim or The Fatal Accidents Act claim; Life insurance proceeds, where no trustee was named on the beneficiary designation form; A share of an estate where the person died without a will; A share of an estate where a person died with a will, but did not provide authority for the executor to hold the child s share, or where the executor does not wish to hold the child s share; Proceeds from the sale or lease of real property registered in the child s name; Lottery winnings; and/or Gifts. How does the Public Guardian and Trustee invest children s trust funds? The Public Guardian and Trustee sets up an individual trust account for each child s funds. Pursuant to section 47 of The Public Guardian and Trustee Act, all funds received by the Office are placed in the Common Fund. The Common Fund is made up of a bank account and investments in bonds and stocks. An investment manager, monitored by a consultant and an Investment Advisory Committee, makes investments in accordance with the approved Investment Policy. This policy can be found on the Public Guardian and Trustee web site. How much is earned? Income is distributed and compounded quarterly. The rate of return fluctuates with each distribution period, depending on market conditions. A history of the rates of return earned on the Common Fund can be found on the Public Guardian and Trustee web site. 2
What fees are charged by the Public Guardian and Trustee? The fees that may be charged by the Public Guardian and Trustee are set out in Regulations. The monthly fee for administering Children s Trust Funds is 1/12th of 1% of the amount held in trust. There is also a fixed fee of $20.00 to open an account and a fixed fee of $20.00 to release an account. Can funds be paid out of the trust fund? The Public Guardian and Trustee has the discretion and the authority to make payments from a Child s Trust Fund for education, maintenance and benefit of the child. At the same time, the Public Guardian and Trustee must ensure that any funds released are used for the purpose for which they were intended. Each request for funds will be considered on an individual basis. Consideration is given to a number of factors, such as the source of funds, the ability of the parents to provide for the child, the amount of the request, the purpose of the request, the amount in the child s trust and the age of the child. As a rule, the Public Guardian and Trustee considers it to be the responsibility of the parents to provide for a child. When the funds are from an injury claim, payments are not usually made from a child s account. If the funds are from life insurance or death benefits paid as a result of the death of a parent, and depending on the individual circumstances, funds may be released from a child s trust for expenses such as maintenance, medical or educational expenses. Funds can also be released to pay income tax that the child has to pay as a result of income earned on the trust. Requests for funds from a child s trust must be made in writing by the guardian and must be substantiated with receipts. The request must also be signed by the child, if the child is fourteen years of age or older. 3
Can funds be invested in Registered Education Savings Plans (RESP s)? The Public Guardian and Trustee recognizes the advantage of the grants available from the federal government when a parent makes contributions to an RESP for their child. However, the funds that are held by the Public Guardian and Trustee belong to the child and must be held as trust funds for the child. Investing funds in an RESP creates special tax implications that may not be appropriate for trust funds. Therefore, funds are not released to purchase or contribute to an RESP unless there are significant special circumstances. What are the income tax implications? The following tax information should be seen as a general overview only. It is recommended that you seek specialized, professional advice if you have any questions about taxation of your child s funds. The Public Guardian and Trustee will issue a T3 Supplementary Slip before March 31 of each year to report the income earned on the trust. For this reason, the Public Guardian and Trustee is required to request a Social Insurance Number for your child, and it is important to keep the Office advised of the child s current address. Canada Revenue Agency considers income earned on the child s trust fund to be income for the child. A tax return should be filed for the child when the child s income from all sources exceeds their basic personal exemption. The basic exemption amount usually changes every year and, therefore, it should be verified annually. Canada Revenue Agency allows the income on injury payments to be exempt from income tax until the year after the recipient turns twenty-one years of age. Lump sum amounts received by the Public Guardian and Trustee on behalf of a child are not usually taxable, but they may be if they are the proceeds of a registered investment. Similarly, a portion of the lump sum amount may be taxable if it is interest earned before the sum was paid to the Public Guardian and Trustee. 4
Even though the income is the child s income, Canada Revenue Agency looks to the parents or the guardians of the child to file a tax return if it is necessary. The Public Guardian and Trustee does not have the authority, or the necessary information, to file a tax return on behalf of a child. If the child owes income taxes on income earned, the child is responsible for paying Canada Revenue Agency, but the taxes can be paid from the funds held by the Public Guardian and Trustee. Once the tax return is prepared and the amount of taxes has been determined, contact the Public Guardian and Trustee s office to request payment. Late filed returns are subject to penalties and interest, and if a tax return is required, it should be filed before the deadline set by Canada Revenue Agency. How and when are the funds paid out? When your child turns eighteen years of age, he or she legally becomes an adult and the Public Guardian and Trustee will release the funds being held in trust. A letter, a printout of the account activity and a release document will be sent to the child shortly after his or her eighteenth birthday. The package will also include instructions for completing the release document. It is important that the Public Guardian and Trustee is kept advised of the current address of the child so that he or she can be contacted at that time. When the properly completed release document is returned to the Public Guardian and Trustee, the final income and fees are calculated and the balance of funds is forwarded to the child. This will take seven to 10 days from the time that the completed release is received in the Office. If the child wishes to personally attend at the Public Guardian and Trustee s office to complete the release document and pick up the cheque, he or she should contact the office at least two weeks before his or her birthday so that appropriate arrangements can be made. 5
Do you have concerns about your child s ability? Some parents may be concerned about their child receiving a large sum of money when he or she turns eighteen. However, the law provides that the child is entitled to the funds at that time and the funds cannot be held back unless there are indicators that the child may not have the legal capacity to manage his or her financial affairs. The funds cannot be held back simply because the child may not appear to be responsible or mature. Parents are encouraged to discuss this with the child and provide advice and direction to the child with respect to managing his or her funds as an adult. Parents are also encouraged to assist the child to make arrangements to receive the funds from the Public Guardian and Trustee and to make arrangements for further investment of the funds. There are some circumstances where children turning eighteen years of age may not have the mental capacity to manage their finances. These children will likely require support and assistance as adults, and alternate plans must be made for them. You may want to explore substitute decision-making options such as property guardianship or power of attorney, and you should consult with a lawyer to discuss these options. What to tell your child about the trust fund Most parents inform their children about the trust a few years before they turn eighteen years of age. However, some parents have reasons for believing that it is better to withhold the information until they feel their child is better able to understand opportunities and consequences associated with receiving a large sum of money. The Public Guardian and Trustee recognizes that this is a personal decision and respects your choice. However, once your child is fourteen years of age, his or her signature is required on any requests for funds and, regardless of your child s age, if he or she contacts the Office requesting information about his or her trust, the information cannot be withheld. 6
What happens if a minor dies before receiving the funds? The Public Guardian and Trustee s responsibilities end upon the death of a minor. The Public Guardian and Trustee will release the trust funds to the personal representative of the estate, who is responsible for distributing the funds according to law. Confidentiality The Public Guardian and Trustee is committed to maintaining the confidentiality of your child s records and information. This is an important part of protecting the child s rights and interests. Maintaining confidentiality is one of the reasons that a written request is required for withdrawing funds or for inquiries about the amount of money in the child s account. In most circumstances, account information will not be provided over the phone, but a statement will be mailed upon request. This booklet is a summary and a guide based on the law. It is not as comprehensive as the law itself. It is not legal advice. If, after reading this booklet, you have questions or are uncertain about how to interpret the information, you should consult with a lawyer. 7
Contact Information Public Guardian and Trustee of Saskatchewan 100-1871 Smith St. Regina, Saskatchewan S4P 4W4 Telephone: (306) 787-5424 Toll Free: 1-877-787-5424 Fax: (306) 787-5065 Email: pgt@gov.sk.ca Web site: www.justice.gov.sk.ca/pgt Office Hours: Monday through Friday, 8:00 a.m. to 5:00 p.m. (Closed for the noon hour and holidays) 8