# Investing on behalf of my kids.



## jason26 (Apr 6, 2009)

Due to a family trust structure (I do contract work) my kids aged 3 and 5 each have personal bank accounts with about $32K each in them. I'd rather not have these sit in cash. These are also not in-trust accounts, as this is money the kids received as income, and they do pay tax on it. So I'm not sure if an informal trust investment account would work.

Are there still options for getting these into some better investment strategy? Mutual funds if need be. Some if it needs to remain liquid as these funds are also used to pay for certain things for them (dentist, etc).

Thanks for any input.


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## Cal (Jun 17, 2009)

I would consider using an RESP to hold some of it for their future education. Then at least whatever you invest within the RESP the gov't will give you 20% up to the annual max. deposit.


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## agladders (May 9, 2010)

*Move it under the trust*

Caution - I am not a lawyer, and definitely not a tax one nor accountant

If I'm understanding you, you have a family trust with your kids as some of the beneficiaries. Each of them has personal (not in-trust) bank accounts and you're wondering how to move that money for investments. 

You sound like you're fine with the kids having control of those funds when they turn 18, or even before then?

I imagine you have a holding company hanging off the family trust as well, and that this holding company already has investment/trading accounts? You could loan the money from the children to the holding company, with appropriate documentation and paying a slightly above rate of interest to prevailing rates. Any income generated in the holding company now comes under the control of the trust/holding company and you can decide how to dividend it out to the children as you see fit, now or at 18. 

The holding company still owes the loan and the interest. This avoids any additional account creation for the kids, although you'll have a bit of accounting to do to keep track of it all, again as you sound like you want the kids to have access to the funds.

If you didn't want the kids to have access/control of the funds without your say-so, you could do it slightly differently.

If you do go this route please consult your accountant to make sure it's done right!

Let us know what you end up doing please


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## Belguy (May 24, 2010)

Generally speaking no mutual funds---please!!

Consider the Easy Chair portfolios at www.canadiancouchpotato.com:cool:


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## warp (Sep 4, 2010)

As BELGUY just said...avoid mutual funds like the plaugue!

RESP's are a better option for part of the money. The 20% the govt kicks in every year can add up! Im not sure how that would work, though, since you say this money already belongs to the kids.Talk to your financial institution about this first, Make sure they know the kids already own that money, and are basically contributing to their own RESP's.

Paying taxes is really not a problem unless you do very , very well with this money, as there will be no taxes payable unless the kids earn above the personal exemption. Their earning might affect any deductuions you might be able to claim for them tho....do your thinking on all this first.

Good div stocks, or a good div ETF would be a good option for the long term..probably reasonable returns with lower volitility. DRIP the divs for solid long term returns.

One last thing...If you do make great gains over the years...think about seling and re-buying as the yaers go by, to have the gains taxable in amounts that will not be taxable in any given year, rather than having a big gain at the end of , say 20 years , which might cause a tax hit.

You can sell...realize the gain in the year that works for you( eg -no tax),,,,then buy back right away!

If there is no tax payable,,,from what I know...you dont even have to file a return! which saves you that trouble.

Also....and I do wish I knew this years ago......If the kids are getting any type of money from the govt..baby bonus etc, monthly...set up a separate account in their names, and have that money kept SEPARATE from your money. Have it direct deposited from the govt into each kids account.

Legally that money BELONGS to them....so any income made off that money will be taxed in their name..not yours .....and as they will prob always be below their personal exemption amounts , they will never pay tax on earnings!
This can add up quickly and substancially over the years ....do not disregard doing this!

Fatherhood is great.

good luck.

Anthony


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## jason26 (Apr 6, 2009)

A little more research and I think I've answered my questions. As these accounts will grow by about $8000/year (trust income), and there is about 12+ years to go, there should be well over $100k for each them by the time they hit university. I'll be looking to close the "youth" bank accounts they have now, and setup a formal trust so they don't have full access to the money when they turn 19. Hopefully when its in a formal trust, it'll be easier to setup an intrust investment account.

I know about the no mutual funds. The tricky part is getting money from a youth bank account into an investment account where the path is completely from their account into their own investment account - these are hot informal trust accounts. And any gains in these accounts should be taxable to them. From what I understand an IFT can get muddy as well.

But I am feeling more prepared with questions for my accountant, as well as when I go to the bank.


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## alphatrader2000 (Aug 18, 2010)

jason26 said:


> Due to a family trust structure (I do contract work) my kids aged 3 and 5 each have personal bank accounts with about $32K each in them. I'd rather not have these sit in cash. These are also not in-trust accounts, as this is money the kids received as income, and they do pay tax on it. So I'm not sure if an informal trust investment account would work.
> 
> Are there still options for getting these into some better investment strategy? Mutual funds if need be. Some if it needs to remain liquid as these funds are also used to pay for certain things for them (dentist, etc).
> 
> Thanks for any input.


Whatever you do, dont buy mutual funds. depending on liquidity that you need you can divide the fund to cash, short term government bonds and XIU or SPY (they are ETF, the first replicated TSX 60 and the other S&P 500). With SPY you have currency risk, but IMHO high canadian currency and battered us market make it good catch. Oh. and nothing wrong with being in total cash and putting in in Ally or ING and get some good interest (comparing to what is available)

I hope this helps.


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