# Trust Fund or RESP for kids



## runner39 (Mar 11, 2010)

Which one to use:

1) RESP seems like to way to go when making monthly/annual contributions, what about tax upon withdrawals and realize should be minimal as will be calculated on childs income, what if kid doesn't go to post secondary school

2) Trust Fund, better for initial lump sum? what about making monthly/annual contributions, tax upon withdrawals? better if child doesn't go to post secondary school?


----------



## Addy (Mar 12, 2010)

Rev Canada has a detailed information package available online regarding RESP's. There are many options should the child not attend school (if you open a family RESP account which I highly advise anyone to do), such as another sibling using the money, even a parent using the money. Highly advise reading, it's easy to read and useful.

I prefer the RESP because of the $ the feds give you, but it will be interesting to hear others opinions on this.


----------



## Four Pillars (Apr 5, 2009)

I like the RESP - the penalties are not as bad as most people seem to think - and they can be easily avoided.

Regarding Addy's comment - you can easily transfer funds to a sibling even if they have separate individual RESP accounts - you don't have to have a family account, although to be honest, family accounts are probably a bit easier for that purpose.

Here's a comparison I did between RESP and open account - my opinion on trustss is there as well.

http://www.moneysmartsblog.com/resp-a-comparison-to-non-registered-accounts/


----------



## runner39 (Mar 11, 2010)

in regards to tax on withdrawals from a trust fund: who is responsible for the tax the subscriber (parent) or the child, I am assuming the child or should say young adult (will be 18 yrs old when withdrawals start) because they (being the withdrawals) will be considering income for them. correct?


----------



## Four Pillars (Apr 5, 2009)

runner39 said:


> in regards to tax on withdrawals from a trust fund: who is responsible for the tax the subscriber (parent) or the child, I am assuming the child or should say young adult (will be 18 yrs old when withdrawals start) because they (being the withdrawals) will be considering income for them. correct?


Why would the withdrawals be taxable? Are you talking about capital gains tax?


----------



## runner39 (Mar 11, 2010)

Four Pillars said:


> Why would the withdrawals be taxable? Are you talking about capital gains tax?


yes, who is responsible for the capital gains tax, parent or child upon withdrawals


----------



## Four Pillars (Apr 5, 2009)

I believe that if you set up an "in trust" account (which is not the same as a formal trust), any income (interest, dividends) in the account is taxable in the hands of the account owner (ie the parent) and capital gains are taxable at the hands of the child. 

It should be noted that capital gains can occur without withdrawals. 

I'm not sure about the rules for a "formal trust" if that is what you are referring to.


----------

