Doing it right with In-Trust For accounts

In-Trust For (ITF) accounts can be a great way to invest in a child’s name, while at the same time potentially offering some tax benefits.

ITF accounts are most often used to save for a child’s education but can also be used for other purposes. Although there can be benefits to ITF accounts, they also have their drawbacks, so be sure to understand the legal implications of these accounts before signing on the dotted line.

An ITF account is basically an informal trust, whereby money is held for the benefit of a minor child until he or she reaches the age of majority (which is 18 in most provinces).

ITF accounts are often needed because a minor or a relative wants to invest in that minor’s name. The problem is that financial institutions are reluctant to set up investment contracts with minors (for legal reasons), therefore, the only way to invest on that minor’s behalf is to set up an ITF account, naming a person who is of age of majority as “trustee.” The trustee is the person who is responsible for making decisions on the account, including when to purchase and sell investments.

The account is an informal trust because there is no written trust agreement in place.

With a formal trust, you would normally go to a lawyer to draw up a document outlining all the specifics to the trust, including the parties to the trust and instructions for the trustee to follow.

The only document providing evidence to the ITF account and the trust relationship is the investment contract signed when the account is established.