In our July 2025 information bulletin about guardianship, an overview was provided regarding what the role involves, the application process and related comments. Guardianship is definitely an important legal tool to provide responsible substitute decision making for minors, and incapable adults who do not have valid powers of attorney, that can also facilitate access to resources such as registered disability savings plans (RDSPs) and the election for qualified disability trusts. Why then do people try to avoid guardianship appointments or substantially delay applying, and are there alternatives to guardianship?
Where the issue is guardianship of the person or property for someone who is a minor about to reach the age of majority, the delay may just be practical as the prospective applicant runs out the clock and tries to make do informally. With respect to finances, if assets for the benefit of a minor are held in an inter vivos trust, or directed to be administered in a testamentary trust (e.g. trust arising under a Will), there may not need to be a guardian of property appointed.
If a parent dies intestate, the share of the estate assets the law allocates for the minor children (above provincially provided limits) must be paid into court unless the surviving parent, or other adult, applies to be the guardian of property. Payment into court saves costs, but takes away control and the surviving parent will need to coordinate with the Office of the Children’s Lawyer (Ontario) to requisition withdrawals from time to time. On balance, it may make sense for some parents to take a wait and see approach.
Where adults lack legal capacity, a perceived barrier can be the requirement for the court to declare the person incapable of property, personal care, or both types of decisions. While this declaration may seem uncharitable, it should be remembered that it is just a legal threshold to ensure people’s individualism is protected. It is in no way a criticism of the vulnerable person or a rejection of their fundamental worth and humanity. Guardianship is intended to empower people who lack legal capacity, particularly adults, to more fully participate in society, access resources and be protected.
Having said this, it is recognized that guardianship applications have a cost, and the management plans are rigid compared to powers of attorney or trusts. This raises the question of possible options to guardianship applications. For capable adults, the key option is to make powers of attorney for property and personal care while capable and keeping them up to date. Inter vivos trusts are another option to assist with management of property as well.
A third option, where litigation such as personal injury claims are involved, is a court-ordered trust for the benefit of the claimant (adult or minor). Courts have jurisdiction to recognize trusts expressly created by a person and those that arise by operation of law. In addition, they have jurisdiction to award declaratory relief, and this can include that certain property to which a person would otherwise be entitled is to be held in trust on terms accepted by the court. For example, Ontario’s superior court is a court of inherent jurisdiction and section 97 of the Courts of Justice Act (Ontario) provides as follows:
97 The Court of Appeal and the Superior Court of Justice, exclusive of the Small Claims Court, may make binding declarations of right, whether or not any consequential relief is or could be claimed.
Other provinces and territories of Canada have similar legal rules to Ontario.
The court, by declaring a trust with respect to property, is declaring the respective rights and responsibilities of the beneficiary and trustee.
A key benefit of a court-ordered trust is that it can be structured to specifically accommodate the needs of the claimant, who does not need to be declared legally incapable of financial decision making. This is helpful where the test for incapacity is not met, but there is a clear sign of challenges. The court will still need to be satisfied that the trust is for the benefit of the claimant.
Trusts can provide an element of asset protection in addition to assistance with asset management, as well as privacy and act as a safeguard against the consequences of a future loss of capacity. In personal injury cases, the trust can hold the unstructured portion of the settlement as well as the claimant’s interest in the structured settlement as an extra layer of protection to manage the flow of income and capital.
There are certain considerations to keep in mind with the type of court-ordered trust referenced here, such as:
- The trust will be a separate taxpayer and, therefore, need to file tax returns and related materials
- There will be attribution of income, dividends, gains and losses to the beneficiary for income tax purposes due to the application of s.75(2) of the Income Tax Act
- The 21 year deemed disposition rule is not applicable, with the first deemed disposition occurring on the death of the beneficiary and taxes arising at that time being payable out of the trust income and property
- There cannot be a rollout of assets at the adjusted cost base due to the application of s.75(2) of the Income Tax Act unless the assets are transferred to the beneficiary and they are resident in Canada at the time of the transfer
- The balance of the trust property will fall into the beneficiary’s estate on their death, unless the court orders otherwise, and the person may not have an up to date Will or the ability to make one which will mean the intestacy rules will apply
It is assumed that the trust will be for the sole benefit of the litigation claimant and terminate on their death, or an earlier date if the property held in the trust is exhausted.
Conclusions:
Guardianship remains an important, and sometimes necessary, legal tool where other options do not exist. However, the option of a court-ordered trust should be investigated where appropriate as a more flexible and customized alternative to guardianship.
The above commentary is based on the laws of Ontario and those of Canada applicable therein. This blog post is not intended as legal or other professional advice. Please consult appropriate advisors before taking any action.
