1. cannon_fodder on March 20, 2008 at 10:29 am

    What about when the child wants to invest their own money? One child I know has received thousands of dollars over the years from a big family for bdays and Christmas. How does one ensure the parent/guardian isn’t hit with a tax on income (assuming that the investments aren’t only generating capital gains)? What is the process to solve this dilemma?

  2. Dividendgrowth on March 20, 2008 at 10:43 am

    Investing money on behalf of your toddler is one of the best things you can do for your kid. If you set up the fund when the child is born the money could be able to compound for two decades before the kid goes to college. Imagine if that’s the retirement fund for the kid..

  3. WhereDoesAllMyMoneyGo.com on March 20, 2008 at 11:13 am

    Hi FT – the RESP bill in question was killed last week in the house of commons.

  4. Curious on March 20, 2008 at 12:29 pm

    I’m reading up on informal trusts because my parents have set one of for my children. As I understand it, the income from the trust then pays into the RESPs. Does that sound right?

  5. cnidog on March 20, 2008 at 1:53 pm

    My financial planner recently told me that if you have a couple of rental properties you could incorporate a small business. I think that you could also hold investments like stocks, bonds, etc. in that company. Then, when your kids hit 18 and are ready to go to university or on that round-the-world trip, you make them shareholders in the company and pay them dividends. In addition to being able to guide the investments while they are growing up, they will be favourably taxed because the payouts are dividends. Plus, if it looks like they will just throw the money away on parties, you can stop paying them and keep the money for yourself. I don’t have many details on this, but it sounds like it would be worth exploring if you have the right type of investments that would allow you to incorporate a business.

  6. FrugalTrader on March 20, 2008 at 4:15 pm

    Canon, I think that this type of account is probably the best bet if you want a generic investment account on behalf of your children. With regards to taxes on invested gift money, I would need to do some research on that one.

    Preet, thanks for the info, I just fixed the article.

    cnidog, careful with incorporating with passive income being generated within the corp. Passive income taxed at the highest rate within a corp, whereas it’s taxed much less under personal.

    curious, I will have to do more research on the rules when withdrawing from an informal trust. Why not get your parents to directly contribute to the RESP account?

  7. […] Informal In-Trust Accounts at Million Dollar Journey An informal in-trust account is an investment account that is opened for a child (beneficiary). Once the beneficiary turns the age of majority (determined by province), the account automatically gets transferred to his/her name. […]

  8. […] Dollar Journey covers Informal In-Trust Accounts, it’s interesting to see how other governments, in the example Canadian, give their citizens […]

  9. Ed Rempel on April 4, 2008 at 12:29 am

    Good article, FT.

    The critical issue in deciding between “in-trust” accounts and RESP’s is one question: If the child does not ever go to post-secondary school, does the parent want them to have the money anyway (a home down payment, wedding or “get started in life” fund?, or does the child get the money only if they go to school? If the parents want the child to get the money anyway, than In-trust accounts are better (unless the parents are very sure the child will attend university). If the money is only for education, than RESP’s are better.

    The RESP grant is nice, but RESP’s are not friendly for giving money to kids for anything other than post-secondary school.

    Possible tax savings on in-trust accounts can also partially make up for the RESP grant. In-trust accounts, if handled properly, can result in no tax at all, since you can trigger capital gains periodically to stay below the child’s personal exemption. RESP’s might result in some tax if the student has a summer/part time job as well as larger RESP withdrawals.


  10. […] their advisors about the possibility of establishing trust structures ranging in complexity from informal trusts to full-out family trust incorporating holding companies which owns the corporation which conducts […]

  11. informal on May 27, 2008 at 6:13 pm

    Informal In-Trust Accounts

    Bookmarked your post over at Blog Bookmarker.com!

  12. Baillie on November 27, 2008 at 11:21 pm

    Hi FT,

    Your article is very interesting. I was wondering if there are any costs associated with setting up an in-trust account and how much would they be?



  13. FrugalTrader on November 27, 2008 at 11:36 pm

    Baillie, to my knowledge, an informal trust can be opened at most discount brokerages without any extra fees etc. A formal trust account however, I believe is a legal entity which requires extra costs.

    Disclaimer though, I’ve never opened a trust account before so my knowledge about the subject is limited. Maybe more experienced readers can chime in.

  14. Ed Rempel on November 28, 2008 at 12:26 am

    Hi FT,

    An informal trust is just an investment account registered in the name of an adult “in trust for” the child. e.g. Frugal Trader in trust for Mini-Frugal. They are called “ITF” accounts.

    Since you need to be 18 to legally own an investment, anyone under 18 needs to have the account in the name of an adult.

    There is one error in your article. Income is taxed to the parent. Dividends and interest are taxable to the parent, but capital gains are taxable to the child. Therefore, ITF accounts should focus on earning capital gains.

    The account does not automatically change to the child’s name at 18. This is good because how many kids at 18 would be smart with a generous investment account? It is changed when the parent signs to have the name changed. This means the parent can effectively control the account, even when the child is an adult.


  15. Steve Bay on December 20, 2008 at 5:39 pm

    I set up an In-Trust account for my son 16 years ago. Now he is turning 18. When I asked the Mutual Fund Co. what the procedure was for transferring the account over to his name, they said the units would have to be sold & re-purchased by him (the child), and I (the parent) would be on the hook for 16 years of capital gains. That sounds ridiculous as it defeats the whole purpose of an In Trust account. Can you shed any light here ?

  16. mybartmart on June 25, 2009 at 10:24 am

    what about buying Canada savings bonds for your children in their name? I am thinking of doing this every year for ours.

  17. […] their way paid through university. What about all those wildly successful wealthy individuals with trust funds who’ve never had to […]

  18. PJK on April 5, 2017 at 12:35 am

    Although in-trust accounts are typically set up for children, this is not a condition. In my case, I act as trustee on behalf of an elder sibling who gained an inheritance that would otherwise negate her partner’s disability pension. The beneficiary can draw a limited amount from the trust per year to offset living expenses, before those pension benefits are clawed back. I believe in such a case, all interest, dividends, and capital gains incurred by the trust are taxed in the hands of the beneficiary. However, I am new to this…

  19. Steve S. on February 7, 2020 at 3:49 pm

    I opened an “informal trust” account in 2002 for my son who was born in 1999. I used it to hold and invest Christmas gifts to my son from his grandparents, If the investments in the “informal trust” account are now transferred in-kind to a new account that is solely in my adult son’s name, will that in-kind transfer trigger a deemed sale and lead to taxes owing to the CRA in the current year?

    • FT on February 10, 2020 at 6:56 am

      Steve, by the sounds of it, if the new account is still in your son’s name, it should not incur any capital gains tax. However, best to check with an accountant to be sure.

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