# In Trust Investment Account for kid



## The Black Wizard (May 16, 2017)

So Ive got a 7 week old at home now and we have opened an Resp but now im thinking about opening an in trust for investment account for my son. I sort of feel like if he has money invested from such a young age he could have a better start than I had. I'm aware that once he reaches 19 he can do what he wants with it but kind of feel that if he makes the right choices it could be beneficial for him. I'm aware there are trusts you can do for when you die etc but dont think that's what I'm looking for at this time. Not a major amount either... a little bit here and there invested into different stocks. Has anyone done this? Any major pros and cons you want to share?


----------



## humble_pie (Jun 7, 2009)

The Black Wizard said:


> So Ive got a 7 week old at home now and we have opened an Resp but now im thinking about opening an in trust for investment account for my son. I sort of feel like if he has money invested from such a young age he could have a better start than I had. I'm aware that once he reaches 19 he can do what he wants with it but kind of feel that if he makes the right choices it could be beneficial for him. I'm aware there are trusts you can do for when you die etc but dont think that's what I'm looking for at this time. Not a major amount either... a little bit here and there invested into different stocks. Has anyone done this? Any major pros and cons you want to share?



congratulations to yoursel & your wife for producing this little miracle. Age7 weeks he must be beyond cute right now. Smiling, eyes focused on parent face. I forget what age they learn to oppose the thumb but it's a big step in civilization, mankind was able to work tools.

yours feelings of wanting to protect the new baby prince are so understandable. And yet, i would not. The reason is that there are unimaginable costs & expenses waiting for you as a parent, i would invest any extra $$ into the family in the present tense. Don't skimp on the nursery school. Take him on vacations before he's 3. Hockey gear, ski lessons, extra tutoring if he's slow in one subject at school, the list of extras is endless.

i have friends who are paying the montessori nursery school fees for their grandchildren instead of paying into a RESP, which they leave to the parents. Their reasoning is that the young years are so important in terms of growth & development, they don't see any value in waiting for a child to reach the age of 19.

others will say Don't Spoil a Child with Trust Funds but my theme is that imho it's better to utilize extra $$ in the present, to provide the best educational, medical & recreational opportunities that one can as a parent.

lastly, i'm not sure that brokers will open an In Trust account for a minor, with parent acting as trustee. I know that banks will open such bank accounts, but some have reported here in cmf forum that brokers have refused minor accounts.

once again, mille félicitations


.


----------



## Woz (Sep 5, 2013)

I looked into this a fair bit but opted not to. Curious what others have to say on it though. My main motivation for an in-trust account was to reduce taxes. Not sure if it’s the same for you. 

Attribution rules will apply. You can put in any inheritances or child benefits and it will be taxed in your kid’s name. The dividends and interest on any contributions from yourself will be attributed back to yourself. 
There’s no attribution for capital gains so it’ll be taxed in your kid’s name. I was tempted to setup an in-trust account and just purchase a swap based ETF like HXS or HXT that doesn’t pay any dividends.

There’s technically no such thing as an “informal trust” for the CRA. So you have the same requirements as a formal trust. This means that you’d want to document the trust relationship, donor, beneficiary, and trustee. If there’s no documentation then the CRA could challenge that it’s a trust and attribute all capital gains back to you. Supposedly they also challenge the in-trust relationship sometimes when the donor and trustee are the same person. Lastly, you’d need to file a T3 every year for the trust. If you didn’t file a T3 then technically I think you’d be liable to pay a penalty even if there’s no tax owing. This is ultimately why I decided not to open an informal trust account.

That being said, I have a hard time believing that everyone with an informal trust are actually filing a T3. Not sure if it’s because the amounts are small enough that the CRA doesn’t care or if people just attribute everything back to themselves.


----------



## canew90 (Jul 13, 2016)

My wife started a DRIP Trust for both our grandkids back in 2006 by purchasing one share of BNS each. She then contributed $1,000 periodically for about five years. She claimed the dividends on her taxes, but over the years those reinvested dividends grew and compounded. The grand daughter took hers over last year and is continuing to add $100 per month. If they continue to invest in the stock, and possibly transfer some to a tfsa, they will be well set for retirement. Later she might add other stocks, bur for now she's just adding to BNS.

Check a 10 year chart for those etf's as well as their distributions and compare them to BNS.


----------



## SW20 MR2 (Dec 18, 2010)

I set up an in trust account for my older son at Questrade. I invest any money he gets from family into a couch potato portfolio plus a few blue chip dividend holdings. He's 8 now, and the portfolio is approximately $30k. I will give him the portfolio when he's an adult - maybe not at 18, but moreso when I feel like he's responsible enough. We already max out his RESP and will cover his education if the RESP isn't enough. Hence, I'd like this money to go to him getting married or buying a house. I've done the same for my 4 year old as well, but I use my wife's TFSA for his account instead.


----------



## Tawcan (Aug 3, 2012)

We set up an in trust account with ShareOwner when my oldest was born. We invested a lump sum and purchased some dividend stocks. The intend was to let things DRIP and see what happens when he becomes an adult. Now we have two kids, we decided this account will be shared between the two kids. 

Technically the account is under my name so I have to report the income.
More info here in case you're wondering.
https://www.tawcan.com/creating-legacy-dividend-portfolio-kids/
https://www.tawcan.com/creating-a-legacy-kids-dividend-portfolio-update/


----------



## humble_pie (Jun 7, 2009)

i believe that Woz (upthread) is correct. Technically the CRA does not recognize informal trust accounts for minors & theoretically speaking, the full weight of centuries of trust jurisprudence in british common law should fall upon the shoulders of all who dare, as amateurs, to set themselves up as trustees for minors or other incapacitated persons.

in reality the CRA probably does not have the manpower to investigate tiny informal trusts & the returns from assessing abusers would not be worth a CRA effort.

but consider this: trustees are obliged to follow the "prudent man rule" when investing for a minor or other incapacitated person, therefore common stocks are prohibited as investment vehicles unless the trust already holds a greater proportion of highest quality fixed income, ie guaranteed GICs & gilt bonds.

a trust fund that is 100% invested in the common stock of one bank would be considered speculative beyond belief! totally unacceptable!

the "prudent man rule" is universally accepted in common law, so this is likely the reason that brokers tend to not accept trust accounts for minors, while banks do. A bank account would be regarded as inherently more prudent than a shockingly risky brokerage account.

then there's the infamous T-3 trust tax return. Woz is probably right when he says that the majority of tiny informal trusts for minors are not filing these returns. Once again, it's likely the CRA is ignoring the situation because there would be no return for their costly manpower effort to investigate this zone.

lastly, there's the trust deed. This seems to be what Woz means when he talks about documenting who the trust is for plus all of its terms & conditions. 

a real trust deed is perhaps 40 legal pages. Where is the amateur trustee going to procure a document like that? blank will forms are sold in stationary stores, but to the best of my knowledge blank trust deed forms are not sold anywhere.

everything probably boils down to a question of size. If one is talking $5000 injected into a trust for a minor by parents or grandparents, i can't see the tax authorities getting chuffed over this.

but if one is injecting $100,000 & up in order to divert future capital gains from an adult family member to a child, surely one would need to be set up & managed by professionals such as lawyers, professional trustees & chartered accountants. The fees of these latter professionals are so high that - keeping in mind that the greater part of the trust capital has to be invested in safe & prudent interest-bearing paper at today's historic low rates - these days it would appear that a trust of less than $2 million could very well end up losing money.

i would suppose that the above are some of the reasons that the big bank brokers don't like investment trust accounts for minors.


.


----------



## Plugging Along (Jan 3, 2011)

Congratulations on the little one. 

We had no problem opening an informal in trust for both of our kids. We did have our financial advisors do it at the time, and it was relatively easily from what I remember. Definately no lawyers or anything else. 

For small amounts, it’s kind of a pain though. I would make sure that youare maxing rrsp and other avenues first. Our resp, rrsp, and retirement is well funded before we did the in trust. The intrust consist of money given by family as gifts when the kids were born.

Also remember at 18 he can do anything he wants with the money. Once you It the money in, you can’t decide that you don’t want him to have it if he is too immature or whatever and to take it out.


----------



## humble_pie (Jun 7, 2009)

Plugging Along said:


> We had no problem opening an informal in trust for both of our kids. We did have our financial advisors do it at the time, and it was relatively easily from what I remember. Definately no lawyers or anything else ... The intrust consist of money given by family as gifts when the kids were born.
> 
> Also remember at 18 he can do anything he wants with the money. Once you It the money in, you can’t decide that you don’t want him to have it if he is too immature or whatever and to take it out.





plugging can you let us know what kind of investments this informal trust for minors holds? what kind of financial institution holds the trust, ie bank, broker, trust company, or ?

sorry but i would not agree with the mandatory making over of a trust to beneficiary when he or she reaches the age of 18. The whole concept of a trust is to provide subtle alterations to commonly accepted regulations & laws of the land. 

some trusts are never made over to beneficiaries. Such beneficiaries usually benefit from income only, while the ultimate capital beneficiaries - those who will receive the capital of the trust once the income beneficiaries have passed away - are other 3rd parties such as grandchildren, charities, or other classes of beneficiaries.

the plan of distribution is to be spelled out in the trust deed. Beneficiaries are defined therein - it is not possible, for example, to add an additional child to the group of beneficiaries unless the trust deed recites that the beneficiaries are to be "my children in the first degree," without naming or limiting the number of children.


* * * * *


what i'm hoping to do is question the urban myth that a trust for kids is a simple, easy, lighthearted plaything that can be manipulated by parents every time they change their minds. At one extreme, small informal trusts that consist of gifts to children or family allowances paid by governments to their mothers can likely be held in trust without any question from tax authorities.

on the other hand, a large trust set up by a parent to deliberately hold a non-dividend paying investment, in order to flow capital gains into the hands of a low-income child who will pay no tax upon such gains, could easily be questioned by the CRA, imho.

to my mind, the important question is Where is the Dividing Line? in what gray area do small informal trusts for minors begin to segue into tax-evading instruments for parents?

there are a number of experienced & knowledgeable lawyers in this forum. I wonder if they might consider posting their opinions, particularly re this dividing line between an acceptable small trust for a minor vs a larger trust where a donor is seeking to evade capital gains taxation.

it might be dificult to write for the public on this issue, because a solicitor might have to consult CRA private rulings, etc. However, if some guideline could be produced that would help parents & grandparents in cmf forum, that would certainly be a jewel in the CMF research crown!


.


----------



## Eclectic12 (Oct 20, 2010)

In terms of the informal trust going over to the beneficiary at age 18, is there some sort of difference with Quebec legislation?

There seems to be many references that say that the beneficiary taking over at 18 where they can do what they want is the most common situation for an an informal trust.
http://estatelawcanada.blogspot.ca/2012/06/are-in-trust-for-bank-accounts-really.html
https://www.milliondollarjourney.com/informal-in-trust-accounts.htm
http://www.advisor.ca/tax/estate-planning/in-trust-for-accounts-facts-and-fallacies-71779
http://business.financialpost.com/personal-finance/ask-us-whats-the-best-way-to-save-for-my-kids


Without the full blown paperwork of a formal trust, an in trust investment account seems to more likely be an informal one, which at age of majority is most likely the beneficiary's to do with as they please.


Cheers


----------



## humble_pie (Jun 7, 2009)

Eclectic12 said:


> In terms of the informal trust going over to the beneficiary at age 18, is there some sort of difference with Quebec legislation?
> 
> There seems to be many references that say that the beneficiary taking over at 18 where they can do what they want is the most common situation for an an informal trust.
> http://estatelawcanada.blogspot.ca/2012/06/are-in-trust-for-bank-accounts-really.html
> ...





with the exception of carol bezaire at macKenzie financial, one cannot respect your other 2 sources on this issue (two of your sources are actually the same author with the same identical text, which appears to set forth a major mistake) (the other source excuses himself as having never had any experience with an informal trust but having only done quick, ie superficial, research)

although ms bezaire does have valuable things to say in _advisor.ca_, her article is fairly old (2012,) which is why i was hoping that one of the small handful of experienced lawyers in cmf forum might undertake to post an update. 

a detail - ms bezaire says that provincial regulations imposing the making-over of a trust to minor beneficiaries at the age of 18 can be set aside.

once again, i believe it would be greatly appreciated if actual lawyers could speak to this issue here in the forum, as the concept has a great deal of appeal for parents & relatives of children if set up properly.

i do not believe that lay persons such as the double link above with its possible misleading "advice" should set themselves up as experts.


.


----------



## Woz (Sep 5, 2013)

humble_pie said:


> what i'm hoping to do is question the urban myth that a trust for kids is a simple, easy, lighthearted plaything that can be manipulated by parents every time they change their minds. At one extreme, small informal trusts that consist of gifts to children or family allowances paid by governments to their mothers can likely be held in trust without any question from tax authorities.
> 
> on the other hand, a large trust set up by a parent to deliberately hold a non-dividend paying investment, in order to flow capital gains into the hands of a low-income child who will pay no tax upon such gains, could easily be questioned by the CRA, imho.
> 
> ...


I do think it's possible to setup a trust to flow capital gains to minors. I just don't think most are taking the steps required to do so. In order to do it properly (to flow capital gains to minors) you would need the trust to be clearly documented (donor, trustee, beneficiary, property) and you would need a 3rd party to act as trustee.


----------



## humble_pie (Jun 7, 2009)

Woz said:


> I do think it's possible to setup a trust to flow capital gains to minors. I just don't think most are taking the steps required to do so. In order to do it properly (to flow capital gains to minors) you would need the trust to be clearly documented (donor, trustee, beneficiary, property) and you would need a 3rd party to act as trustee.



exactly. Costs an absolute bleeding fortune. One would need to inject at least 1M, possibly 2M, to break even. Some of the professionals who work on these quote a minimum threshhold of 10M.

even then i am not convinced that the CRA would buy it. I think it's possible they might see it as tax evasion. A number of years ago, there were offshore trust accounts doing the same thing. They'd flow the gains through as capital gains to canadian taxpayers (gains can be worldwide) (isn't there an iconic bronfman foreign trust that often gets mentioned at about this point?)

in general the CRA denied the eligibility of those offshore trust funds. At this moment it's wondered what the CRA is doing to do with that all-gains, zero-income domestic thingy from horizons beta, the one that holds futures & other derivatives only.


for purposes of this thread, i continue to think it would be very helpful if one of the excellent lawyers on here could comment on what a family should optimally do when it wishes to set up a small informal family trust with gifts to minors or child care allowances to mothers.

.


----------



## lonewolf :) (Sep 13, 2016)

TBW your intentions of trying to protect your child from being responsible when they get older will have unintended consequences. The government social programs are perhaps the best examples.

If have a mortgage or retirement not funded would that not come first ?


----------



## Plugging Along (Jan 3, 2011)

I will try to see if I can use the quote function properly (my advanced apologizes), also, 8 am not a lawyer nor an expert, this is merely my experience and what I have witnessed first hand with close family. 



> 1. plugging can you let us know what kind of investments this informal trust for minors holds? what kind of financial institution holds the trust, ie bank, broker, trust company, or ?


Ours is at the bank, previously it was with our last financial advisors. Tangerine would not allow it though. We have a mix of etf, some give of equities, And MF. I pay the taxes on any dividends and interest. We haven’t cashed anything as this is ontended to help with post secondary.





> sorry but i would not agree with the mandatory making over of a trust to beneficiary when he or she reaches the age of 18. The whole concept of a trust is to provide subtle alterations to commonly accepted regulations & laws of the land.


This is the case with the informal trust, it does go to the beneficiary when they meet the age or majority. This was a warning we had from others. One of my cousins went absolutely wild and blew their in trust on a sports cars. So, it is a chance one has to take. 



> the plan of distribution is to be spelled out in the trust deed. Beneficiaries are defined therein - it is not possible, for example, to add an additional child to the group of beneficiaries unless the trust deed recites that the beneficiaries are to be "my children in the first degree," without naming or limiting the number of children.


This one of the big differences with a formal trust vs a informal trust. The simplicity of the informal trust doesn’t allow for any control or any of these directives. When I had our advisor set I think up, it was some minor paper work, but definately no lawyers involved, and our accountant has said everything is fine. 




> what i'm hoping to do is question the urban myth that a trust for kids is a simple, easy, lighthearted plaything that can be manipulated by parents every time they change their minds. At one extreme, small informal trusts that consist of gifts to children or family allowances paid by governments to their mothers can likely be held in trust without any question from tax authorities.


Ours is fairlysmall, just 5 digits of their UCB (when we had it], allowances,gifts and a small monthl6 contribution. Ironically, our advisor suggested at the time to create two accounts in trust, one that just had the govenement checks and then everything else so we didn’t have to pay taxes on the portion tha5 came from our kids. It seemed like a lot of work, so we just pay the taxes on ours. 



> on the other hand, a large trust set up by a parent to deliberately hold a non-dividend paying investment, in order to flow capital gains into the hands of a low-income child who will pay no tax upon such gains, could easily be questioned by the CRA, imho.


True, but I think if it’s a really large amount of money, then there is a lot risk handing that over to a 18 year old no strings attached. I trust my kids and more importantly my parenting, but there is no way I would give that money to them when they are that young, that seems like a disaster waiting to happen. I know a lot People how have set up formal trusts with ‘real’ money, but with the fees, it’s doesnt make sense for anything under a million in most cases. My parents wanted to set up trusts for the grandkids, but on only 6 figures, it wasn’t worth it. 



> to my mind, the important question is Where is the Dividing Line? in what gray area do small informal trusts for minors begin to segue into tax-evading instruments for parents?


I think the dividing line is for smaller amounts, where the fees don’t make sense for a formal trust, and you are willing to take the risk that your kid can blow it all at 18, then that’s where the line is. In our informal trust hopefully there will enough money with the kids to do some thing more at a young age, but not enough to be really stupid with it.

I don’t have the technical pieces of how we did it, as 8 had family members help as they did it with their kids, but so far no issues.


----------

