Personal Finance

InFormal Trust - Child

  • Last Updated:
  • Apr 25th, 2017 1:29 am
Tags:
[OP]
Newbie
May 17, 2007
73 posts
London

InFormal Trust - Child

Hello all

I have received conflicting information from cra so I wanted to see what the RFD communuty has to say regarding this situation.

Background

Want to setup a trading account in my newborns name. The purpose would be for me to invest all of her monetary gifts in this account instead of having the money sit in a youth account.

Current plan
Td offers an informal trust that I can set up in her name and invest proceeds in direct investing account. Once she is 18 the money would legally become hers so it will never be mine. The objective is to use this product so the income on the investments are taxed at her rate which would be 0 until its above 10000.

Question
1. Is this assumption correct or will the investments be taxed at my tax rate?
2. Can I add additional funds from my account to this accounts or can it only be strictly gifts or income from her?
3. What type of mutual funds or stocks would be best for this type of account. Would swap based etf like horizons be best since capital gains are taxed least?

Thanks everyone for your help.
19 replies
Deal Addict
User avatar
Dec 8, 2010
1921 posts
592 upvotes
It will be taxed in your name for dividends, but their name for cap gains UNLESS the money comes SOLELY from CTB and foreign gifts directly to the child

What I'm doing is taking some of the monthly CTB money and, on the day it comes in, pushing it straight out to chequing accounts in the child's name. Someone did suggest making a separate account solely to receive CTB money to make it clearer but.. if $400 comes in on one day from the government, and less than that amount goes straight out into an account in the child's name... it's pretty clear IMHO.

Then I will open an investing account in the child's name. I will also do a tax return for the child. Ugh.

When they are 14 I will start selling and rebuying to raise the ACB.
Sr. Member
Nov 13, 2013
599 posts
205 upvotes
I assume RESP is maxed out if not can't see any advantage of this plan. I would worry about fees eating up a lot of your tax savings unless you are talking about a significant amount of money.

Lastly handing an 18'year old a big chunk of money is a bad idea.
[OP]
Newbie
May 17, 2007
73 posts
London
Thanks for the replies.

First off my primary reason for doing this is I want her money that is gifted to her working for her and not sitting in a checking account. I am planning to find the resp with my own money but want to make her money work for her.

Regarding the age, it can also be changed to 25 but with good parenting this shouldn't be an issue if you teach them the value of money at a young age.

Finally as it pertains to funds, it's sounds like I should buy etfs that are purely capital gains plays and have no interest or dividends. Do you think horizon etf hxm would be a good option? Hxt?hxs? Etc
Sr. Member
Nov 13, 2013
599 posts
205 upvotes
hoost wrote:
Apr 20th, 2017 8:10 pm
Thanks for the replies.

First off my primary reason for doing this is I want her money that is gifted to her working for her and not sitting in a checking account. I am planning to find the resp with my own money but want to make her money work for her.

Regarding the age, it can also be changed to 25 but with good parenting this shouldn't be an issue if you teach them the value of money at a young age.

Finally as it pertains to funds, it's sounds like I should buy etfs that are purely capital gains plays and have no interest or dividends. Do you think horizon etf hxm would be a good option? Hxt?hxs? Etc
Seems strange but if your kid is getting thousands of dollars in gifts ( a cultural thing maybe?) I guess there are worse things you could do.

HXT is a great ETF. Very low fees, broad market all capital gains.
HBB is similar for bonds and also a good taxable pick IMHO although with a 20 year horizon you might want to go all stock.
Deal Addict
Jul 15, 2009
1065 posts
259 upvotes
Keep a careful paper trail of all deposits into the account so that you can prove that they came from sources other than you.

File tax returns for the child.

President's Choice offers free chequing accounts. They are handy for keeping your child's deposits separate from any other money.

Do you have a source for the age 25 thing? I thought with an informal trust, you lose all control at age 18.
[OP]
Newbie
May 17, 2007
73 posts
London
I set up a youth account for her so will out the money I get from gifts in there then move it over to trading account.

Regarding the age, the bank said I could also choose to change it to 25 instead of 18. Again the money will be there's at the age you pick but it's not like it will suddenly show up on there account. It will not be seen but if they know about it they can take it
Sr. Member
Nov 13, 2013
599 posts
205 upvotes
At what point does the hassle and loss of control over the funds become worthwhile? I would think it doesn't make sense until well into 6 figures.

Don't count on your kids learning what you teach. Parenting is a bit tougher than that.
I knew two people whose parents had put largish amounts of money in their name essentially to avoid taxes. Both ended up causing a lot of grief to their parents. One ran up credit card debt and either went bankrupt or basically threatened to until his parents paid it off and the other sued for control of the part of his dad's business that was in his name forcing his dad to settle and then cut off all contact with his dad. Your plan is obviously a lot different but don't be surprised if your lifetime of investing buys a Porsche on their 18th birthday. Good point about not telling them but kids have a habit of snooping around on your computer or files.
[OP]
Newbie
May 17, 2007
73 posts
London
I am hearing a lot about how it's a bad idea to setup and account for my child and put in her gift money. What are others doing with this money if they are not saving there gift money for them in their own account. Are you putting into your own non registered accounts or leaving it in 0% savings?

Curious.
Sr. Member
Oct 11, 2010
827 posts
233 upvotes
Charlottetown
Can't you contribute any amount you want to an RESP. There is a cap on grants but you can still contribute more than that
Member
Oct 6, 2015
473 posts
236 upvotes
Nothing with this, but of course, you need to understand that the money is never yours (ie: even as a trustee, you have a legal obligation to only use it to the child's benefit), and gifts from living relatives or yourself may be subject to attribution.

One thing I've seen families do is have their elderly relatives bequeath significant sums to be placed in such accounts. Thus avoiding the whole problem of attribution.
[OP]
Newbie
May 17, 2007
73 posts
London
I am already contributing to her resp and want to have money that I can give to her as a gift of a down payment on a home for example. This is why I wanted to setup a separate account but maybe it's best just to put it in a non registered investing account if my own
Sr. Member
Nov 13, 2013
599 posts
205 upvotes
jfall wrote:
Apr 23rd, 2017 3:26 am
Can't you contribute any amount you want to an RESP. There is a cap on grants but you can still contribute more than that
Lifetime maximum for RESP is $50k. I think it's clearly the best use of the first $50k you gift or have gifted to your child. To get the grant you need to spread the contributions out so $16500 would be the most you want to contribute for an infant. After that $2500 a year.
[OP]
Newbie
May 17, 2007
73 posts
London
Regarding resp does that mean if I put 16500 I would get the full 7200 in grant money right away. Always thought they would only give you 500 per year on 2500
Deal Addict
User avatar
Dec 8, 2010
1921 posts
592 upvotes
hoost wrote:
Apr 23rd, 2017 12:21 pm
Regarding resp does that mean if I put 16500 I would get the full 7200 in grant money right away. Always thought they would only give you 500 per year on 2500
It's $500 for this year plus up to $500 catch up from the previous year I believe. So no, generally don't do more than $2500 a year.

Top