Comments on: Informal In-Trust Accounts http://www.milliondollarjourney.com/informal-in-trust-accounts.htm Building Wealth through Saving and Investing Sat, 21 Nov 2009 03:00:37 -0500 http://wordpress.org/?v=abc hourly 1 By: To RESP or Not: Should we be funding our children’s higher education? | Million Dollar Journey http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-103664 To RESP or Not: Should we be funding our children’s higher education? | Million Dollar Journey Wed, 02 Sep 2009 16:22:19 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-103664 [...] their way paid through university. What about all those wildly successful wealthy individuals with trust funds who’ve never had to [...]

[...] their way paid through university. What about all those wildly successful wealthy individuals with trust funds who’ve never had to [...]

]]> By: mybartmart http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-88989 mybartmart Thu, 25 Jun 2009 12:54:27 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-88989 what about buying Canada savings bonds for your children in their name? I am thinking of doing this every year for ours. what about buying Canada savings bonds for your children in their name? I am thinking of doing this every year for ours.

]]> By: Steve Bay http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-65041 Steve Bay Sat, 20 Dec 2008 21:09:29 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-65041 I set up an In-Trust account for my son 16 years ago. Now he is turning 18. When I asked the Mutual Fund Co. what the procedure was for transferring the account over to his name, they said the units would have to be sold & re-purchased by him (the child), and I (the parent) would be on the hook for 16 years of capital gains. That sounds ridiculous as it defeats the whole purpose of an In Trust account. Can you shed any light here ? Steve I set up an In-Trust account for my son 16 years ago. Now he is turning 18. When I asked the Mutual Fund Co. what the procedure was for transferring the account over to his name, they said the units would have to be sold & re-purchased by him (the child), and I (the parent) would be on the hook for 16 years of capital gains. That sounds ridiculous as it defeats the whole purpose of an In Trust account. Can you shed any light here ?
Steve

]]> By: Ed Rempel http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-62201 Ed Rempel Fri, 28 Nov 2008 03:56:37 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-62201 Hi FT, An informal trust is just an investment account registered in the name of an adult "in trust for" the child. e.g. Frugal Trader in trust for Mini-Frugal. They are called "ITF" accounts. Since you need to be 18 to legally own an investment, anyone under 18 needs to have the account in the name of an adult. There is one error in your article. Income is taxed to the parent. Dividends and interest are taxable to the parent, but capital gains are taxable to the child. Therefore, ITF accounts should focus on earning capital gains. The account does not automatically change to the child's name at 18. This is good because how many kids at 18 would be smart with a generous investment account? It is changed when the parent signs to have the name changed. This means the parent can effectively control the account, even when the child is an adult. Ed Hi FT,

An informal trust is just an investment account registered in the name of an adult “in trust for” the child. e.g. Frugal Trader in trust for Mini-Frugal. They are called “ITF” accounts.

Since you need to be 18 to legally own an investment, anyone under 18 needs to have the account in the name of an adult.

There is one error in your article. Income is taxed to the parent. Dividends and interest are taxable to the parent, but capital gains are taxable to the child. Therefore, ITF accounts should focus on earning capital gains.

The account does not automatically change to the child’s name at 18. This is good because how many kids at 18 would be smart with a generous investment account? It is changed when the parent signs to have the name changed. This means the parent can effectively control the account, even when the child is an adult.

Ed

]]> By: FrugalTrader http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-62194 FrugalTrader Fri, 28 Nov 2008 03:06:08 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-62194 Baillie, to my knowledge, an informal trust can be opened at most discount brokerages without any extra fees etc. A formal trust account however, I believe is a legal entity which requires extra costs. Disclaimer though, I've never opened a trust account before so my knowledge about the subject is limited. Maybe more experienced readers can chime in. Baillie, to my knowledge, an informal trust can be opened at most discount brokerages without any extra fees etc. A formal trust account however, I believe is a legal entity which requires extra costs.

Disclaimer though, I’ve never opened a trust account before so my knowledge about the subject is limited. Maybe more experienced readers can chime in.

]]> By: Baillie http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-62192 Baillie Fri, 28 Nov 2008 02:51:36 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-62192 Hi FT, Your article is very interesting. I was wondering if there are any costs associated with setting up an in-trust account and how much would they be? Thanks, Baillie Hi FT,

Your article is very interesting. I was wondering if there are any costs associated with setting up an in-trust account and how much would they be?

Thanks,

Baillie

]]> By: informal http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-37131 informal Tue, 27 May 2008 20:43:14 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-37131 <strong>Informal In-Trust Accounts</strong> Bookmarked your post over at Blog Bookmarker.com!

Informal In-Trust Accounts

Bookmarked your post over at Blog Bookmarker.com!

]]> By: Thicken My Wallet » Blog Archive » Credit Proofing in Bad Times: Options and Tools http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-30470 Thicken My Wallet » Blog Archive » Credit Proofing in Bad Times: Options and Tools Tue, 08 Apr 2008 08:58:05 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-30470 [...] their advisors about the possibility of establishing trust structures ranging in complexity from informal trusts to full-out family trust incorporating holding companies which owns the corporation which conducts [...]

[...] their advisors about the possibility of establishing trust structures ranging in complexity from informal trusts to full-out family trust incorporating holding companies which owns the corporation which conducts [...]

]]> By: Ed Rempel http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-30076 Ed Rempel Fri, 04 Apr 2008 02:59:29 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-30076 Good article, FT. The critical issue in deciding between "in-trust" accounts and RESP's is one question: If the child does not ever go to post-secondary school, does the parent want them to have the money anyway (a home down payment, wedding or "get started in life" fund?, or does the child get the money only if they go to school? If the parents want the child to get the money anyway, than In-trust accounts are better (unless the parents are very sure the child will attend university). If the money is only for education, than RESP's are better. The RESP grant is nice, but RESP's are not friendly for giving money to kids for anything other than post-secondary school. Possible tax savings on in-trust accounts can also partially make up for the RESP grant. In-trust accounts, if handled properly, can result in no tax at all, since you can trigger capital gains periodically to stay below the child's personal exemption. RESP's might result in some tax if the student has a summer/part time job as well as larger RESP withdrawals. Ed Good article, FT.

The critical issue in deciding between “in-trust” accounts and RESP’s is one question: If the child does not ever go to post-secondary school, does the parent want them to have the money anyway (a home down payment, wedding or “get started in life” fund?, or does the child get the money only if they go to school? If the parents want the child to get the money anyway, than In-trust accounts are better (unless the parents are very sure the child will attend university). If the money is only for education, than RESP’s are better.

The RESP grant is nice, but RESP’s are not friendly for giving money to kids for anything other than post-secondary school.

Possible tax savings on in-trust accounts can also partially make up for the RESP grant. In-trust accounts, if handled properly, can result in no tax at all, since you can trigger capital gains periodically to stay below the child’s personal exemption. RESP’s might result in some tax if the student has a summer/part time job as well as larger RESP withdrawals.

Ed

]]> By: Personal Finance Review - When’s the Next Black Monday? » Money Smart Life http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-29029 Personal Finance Review - When’s the Next Black Monday? » Money Smart Life Mon, 24 Mar 2008 13:00:39 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-29029 [...] Dollar Journey covers Informal In-Trust Accounts, it’s interesting to see how other governments, in the example Canadian, give their citizens [...]

[...] Dollar Journey covers Informal In-Trust Accounts, it’s interesting to see how other governments, in the example Canadian, give their citizens [...]

]]> By: Weekend Linkage - March 23, 2008 | The Suns Financial Diary | A Personal Finance Blog on Saving and Investing http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-28998 Weekend Linkage - March 23, 2008 | The Suns Financial Diary | A Personal Finance Blog on Saving and Investing Mon, 24 Mar 2008 02:14:34 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-28998 [...] Informal In-Trust Accounts at Million Dollar Journey An informal in-trust account is an investment account that is opened for a child (beneficiary). Once the beneficiary turns the age of majority (determined by province), the account automatically gets transferred to his/her name. [...]

[...] Informal In-Trust Accounts at Million Dollar Journey An informal in-trust account is an investment account that is opened for a child (beneficiary). Once the beneficiary turns the age of majority (determined by province), the account automatically gets transferred to his/her name. [...]

]]> By: FrugalTrader http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-28703 FrugalTrader Thu, 20 Mar 2008 18:45:48 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-28703 Canon, I think that this type of account is probably the best bet if you want a generic investment account on behalf of your children. With regards to taxes on invested gift money, I would need to do some research on that one. Preet, thanks for the info, I just fixed the article. cnidog, careful with incorporating with passive income being generated within the corp. Passive income taxed at the highest rate within a corp, whereas it's taxed much less under personal. curious, I will have to do more research on the rules when withdrawing from an informal trust. Why not get your parents to directly contribute to the RESP account? Canon, I think that this type of account is probably the best bet if you want a generic investment account on behalf of your children. With regards to taxes on invested gift money, I would need to do some research on that one.

Preet, thanks for the info, I just fixed the article.

cnidog, careful with incorporating with passive income being generated within the corp. Passive income taxed at the highest rate within a corp, whereas it’s taxed much less under personal.

curious, I will have to do more research on the rules when withdrawing from an informal trust. Why not get your parents to directly contribute to the RESP account?

]]> By: cnidog http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-28694 cnidog Thu, 20 Mar 2008 16:23:28 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-28694 My financial planner recently told me that if you have a couple of rental properties you could incorporate a small business. I think that you could also hold investments like stocks, bonds, etc. in that company. Then, when your kids hit 18 and are ready to go to university or on that round-the-world trip, you make them shareholders in the company and pay them dividends. In addition to being able to guide the investments while they are growing up, they will be favourably taxed because the payouts are dividends. Plus, if it looks like they will just throw the money away on parties, you can stop paying them and keep the money for yourself. I don't have many details on this, but it sounds like it would be worth exploring if you have the right type of investments that would allow you to incorporate a business. My financial planner recently told me that if you have a couple of rental properties you could incorporate a small business. I think that you could also hold investments like stocks, bonds, etc. in that company. Then, when your kids hit 18 and are ready to go to university or on that round-the-world trip, you make them shareholders in the company and pay them dividends. In addition to being able to guide the investments while they are growing up, they will be favourably taxed because the payouts are dividends. Plus, if it looks like they will just throw the money away on parties, you can stop paying them and keep the money for yourself. I don’t have many details on this, but it sounds like it would be worth exploring if you have the right type of investments that would allow you to incorporate a business.

]]> By: Curious http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-28691 Curious Thu, 20 Mar 2008 14:59:46 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-28691 I'm reading up on informal trusts because my parents have set one of for my children. As I understand it, the income from the trust then pays into the RESPs. Does that sound right? I’m reading up on informal trusts because my parents have set one of for my children. As I understand it, the income from the trust then pays into the RESPs. Does that sound right?

]]> By: WhereDoesAllMyMoneyGo.com http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-28689 WhereDoesAllMyMoneyGo.com Thu, 20 Mar 2008 13:43:39 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-28689 Hi FT - the RESP bill in question was killed last week in the house of commons. Hi FT – the RESP bill in question was killed last week in the house of commons.

]]> By: Dividendgrowth http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-28687 Dividendgrowth Thu, 20 Mar 2008 13:13:36 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-28687 Investing money on behalf of your toddler is one of the best things you can do for your kid. If you set up the fund when the child is born the money could be able to compound for two decades before the kid goes to college. Imagine if that's the retirement fund for the kid.. Investing money on behalf of your toddler is one of the best things you can do for your kid. If you set up the fund when the child is born the money could be able to compound for two decades before the kid goes to college. Imagine if that’s the retirement fund for the kid..

]]> By: cannon_fodder http://www.milliondollarjourney.com/informal-in-trust-accounts.htm/comment-page-1#comment-28683 cannon_fodder Thu, 20 Mar 2008 12:59:59 +0000 http://www.milliondollarjourney.com/informal-in-trust-accounts.htm#comment-28683 What about when the child wants to invest their own money? One child I know has received thousands of dollars over the years from a big family for bdays and Christmas. How does one ensure the parent/guardian isn't hit with a tax on income (assuming that the investments aren't only generating capital gains)? What is the process to solve this dilemma? What about when the child wants to invest their own money? One child I know has received thousands of dollars over the years from a big family for bdays and Christmas. How does one ensure the parent/guardian isn’t hit with a tax on income (assuming that the investments aren’t only generating capital gains)? What is the process to solve this dilemma?

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