Formal trusts are established using a legal document called a deed of trust. Informal trusts, while arranged similarly, do not require the same legal structure.<\/p>\n\n\n\n
Formal trusts<\/h3>\n\n\n\n
Broadly, formal trusts, often set up by a lawyer, come in two categories:<\/p>\n\n\n\n
Testamentary trusts<\/strong> come into effect when the testator (the person who sets up the trust) dies. The terms of the trust are established in the person\u2019s will<\/a> and set out what assets are held in the trust, who will be receiving them (the beneficiaries), who will act as the trustee, and how the assets will be distributed.<\/p>\n\n\n\n Inter vivos trusts<\/strong>, or living trusts, are set up during your lifetime and may carry tax advantages, the flexibility to control how your assets are used or spent, and the ability to keep the terms of your trust confidential. TFSAs and RRSPs<\/a> are examples of inter vivos trusts.<\/p>\n\n\n\n \u00bb If you have valued assets or people who mean a lot to you,<\/strong> it\u2019s time to think about creating an estate plan.<\/a><\/p>\n\n\n\n In-trust (also referred to as ITF or \u201cin-trust for\u201d accounts) are savings or investment accounts opened by an individual for the benefit of another person (often a minor child). These are often known as informal trusts because there is no deed of trust in place. Instead, the only contract detailing the trust relationship is the financial institution\u2019s investment contract or account documents.<\/p>\n\n\n\n Once an ITF is opened, trustees can make contributions or investments, with no limits, into the account, on the child\u2019s behalf. Until the child reaches the age of majority in their province, any withdrawals have to be used for their benefit. These accounts can\u2019t be closed or modified without the beneficiary\u2019s permission.<\/p>\n\n\n\n Once the beneficiary reaches the legal age of majority in the province in which they live, they are entitled to the account\u2019s proceeds.<\/p>\n\n\n\n Many people choose ITFs because they allow the money withdrawn to be used for any purpose. For example, children can use the account to pay for education, or something entirely different when they reach the age of majority, explains Graham Priest, a certified financial planner and investment advisor with BlueShore Financial in North Vancouver, B.C.<\/p>\n\n\n\n \u201cSome people do prefer this type of an arrangement because they feel it\u2019s more flexible as to what the funds can be used for at a later date,\u201d he says.<\/p>\n\n\n\n \u201cYou might have a situation where a grandparent has set up an RESP<\/a> for a grandchild and contributions are being maximized there, and then a parent, perhaps, wants to set up something that would help supplement that. So then, a trust account or an informal trust account is something that they\u2019ll sometimes look towards,\u201d he adds.<\/p>\n\n\n\n Compared to a testamentary or inter vivos trust, an ITF requires less documentation and is often cheaper to set up. However, says Priest, these accounts come with a few considerations \u2014 the first is taxation<\/a>.<\/p>\n\n\n\n \u201cIf it\u2019s a minor child, capital gains are generally taxed in the child\u2019s hands, but you get attribution back to the parents on income,\u201d he says. That means parents end up getting taxed on dividends and interest unless the money being used originated from the Canada Child Benefit<\/a> or the Universal Child Care Benefit.<\/p>\n\n\n\n Individuals with larger portfolio sizes, he adds, may prefer a formal trust as arrangements are more clearly detailed and there is less concern about the account being contested in the event of the trustee\u2019s death.<\/p>\n\n\n\n When considering whether to set up an ITF or a formal trust, seek the assistance of legal counsel or a financial advisor for more information.<\/p>\n\n\n\n \u00bb Planning for parenthood?:<\/strong> Financial milestones you’ll encounter while growing a family<\/a><\/p>\n\n\n\n Setting up an in-trust account involves visiting your financial institution or speaking to your investment advisor to complete an account application.<\/p>\n\n\n\n Once the beneficiary reaches the legal age of majority, the trustee can have the account transferred directly to the beneficiary by working with the beneficiary’s investment advisor or the financial institution that set up the account. As Priest explains, the transfer should not be taxable because ownership isn\u2019t truly changing.<\/p>\n\n\n\n Helen Burnett-Nichols is a freelance writer specializing in news and feature articles on a variety of business, legal and investment topics. Her work has appeared in publications such as The…<\/p>\n\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\tRead more about Helen Burnett-Nichols and explore their articles<\/span>\n\t\t\t\t\t\t<\/a>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t<\/div>\n<\/div>\n\n\n\n\t A bank account for kids is designed for children and teens with different eligibility requirements, features and fees than adult accounts. <\/p>\n\t<\/div>\n\n\t Estate planning ensures that your end-of-life wishes are carried out and your assets are handled according to your desires.<\/p>\n\t<\/div>\n\n\t Writing a legally binding will in Canada depends on the laws of your province or territory. You can choose to write a will yourself or hire a lawyer to assist you.<\/p>\n\t<\/div>\n\n\tInformal trusts<\/h3>\n\n\n\n
How in-trust accounts work<\/h2>\n\n\n\n
When is an in-trust account a good idea?<\/h2>\n\n\n\n
How to set up an in-trust account<\/h2>\n\n\n\n
\n\t\t\tAbout the Author\t\t<\/h4>\n\n\t\t\t\t\t
\n\t\t\t\tDIVE EVEN DEEPER\t\t\t<\/h4>\n\t\t\n\t\t
![\"Bank](\"https:\/\/www.nerdwallet.com\/ca\/wp-content\/uploads\/sites\/2\/2021\/11\/GettyImages-1304492231-e1638296823897-460x192.jpg\")
\t<\/a>\n\t\t\t\n\t\n\t\tBank Account for Kids: How Does it Work?\t<\/a>\n<\/h4>\n\n\t
![\"\"](\"https:\/\/www.nerdwallet.com\/ca\/wp-content\/uploads\/sites\/2\/2022\/03\/Headshot_Siddhi-Jahagirdar-e1648746969870-40x40.jpg\")
Siddhi Bagwe<\/a>\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t<\/div>\n\t\t<\/div>\n\t<\/div>\n<\/div>\n<\/div>![\"What](\"https:\/\/www.nerdwallet.com\/ca\/wp-content\/uploads\/sites\/2\/2021\/12\/GettyImages-1305249919-e1639492538382-460x192.jpg\")
\t<\/a>\n\t\t\t\n\t\n\t\tWhat is Estate Planning?\t<\/a>\n<\/h4>\n\n\t
![\"\"](\"https:\/\/www.nerdwallet.com\/ca\/wp-content\/uploads\/sites\/2\/2021\/07\/Sandra-MacGregor-e1626212852416-40x40.jpg\")
Sandra MacGregor<\/a>\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t<\/div>\n\t\t<\/div>\n\t<\/div>\n<\/div>\n<\/div>![\"Why](\"https:\/\/www.nerdwallet.com\/ca\/wp-content\/uploads\/sites\/2\/2021\/12\/GettyImages-960320804-e1639497942110-460x192.jpg\")
\t<\/a>\n\t\t\t\n\t\n\t\tWhy You Need a Will and How to Write One\t<\/a>\n<\/h4>\n\n\t
![\"Choosing](\"https:\/\/www.nerdwallet.com\/ca\/wp-content\/uploads\/sites\/2\/2021\/12\/GettyImages-1174972796-e1639495493541-460x192.jpg\")
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