Trust For” Account
is possible for you to save for your children’s future education
costs and achieve significant tax savings without an RESP,
depending on the type of investments you choose.
strategy involves opening a regular investment account in
your own name “In Trust For” your child and investing in an
equity mutual fund that seeks capital gains while minimizing
interest and dividends. Although any “first generation” interest
or dividend income is still taxable in your name, the amount
should be relatively small.
importantly, any realized capital gains will be taxed in your
child’s name, so the total tax payable on any income from
this account should remain low for several years. If the money
in the account belongs to the child (i.e., Child Tax Benefit
payments, inheritance proceeds, job earnings), then any interest
and dividends are also taxed in the child’s name as well as
any realized capital gains.
this type of informal trust account is not fully tax-sheltered
like an RESP, you will be able to access the growth portion
at any time for any purpose that benefits your child, and
not just to pay for expenses while your child is pursuing
a higher education. More importantly, there is no annual contribution
limit to an “In Trust For” account.
is important to note that upon reaching the age of majority,
your child is within their rights to assume full control over
their account. Parents, who want more control over the funds
and wish to avert some of the potential drawbacks of an informal
trust, can enter into a written trust arrangement or formal
trust. Legal fees and a special trust tax return however make
the formal trust a more costly arrangement to set up and require
more time to administer.
A number of other legal, estate, record-keeping, tax, and
investment factors must be carefully examined when considering
non-RESP strategies. This information provides only a general
overview of “In Trust For” accounts. Consultation with a qualified
independent financial planner or legal advisor is essential
to address tax issues and to ensure that a formal trust arrangement
is set up properly.