PINKNEY FINANCIAL SERVICES
Informal Trust Fund Account
Investment & Savings
Informal Trust Fund Account (ITF)
An Informal Trust Fund (ITF) is a temporary account managed by a person of age for the benefit of a minor. The person of age is legally in control of the account until the minor turns of age. As minors are illegible for most saving accounts (RRSP, TFSA, non-registered cash account), an ITF will allow them to own stocks, bonds, and investment funds. Typically, the funds are contributed from an inheritance, a gift, Canada Child Benefit payments, allowance, or salary.
An ITF has the additional utility of being used for income splitting. Taxes which would’ve been attributable to the person of age may be eligible to be attributed to the minor.
Below is a summary of who is responsible for paying the taxes on an ITF account
Canada Child Benefit payments
Key Features of an ITF
- Saving Account for Minor: As children do not have the legal capacity to enter contractual relationships, they are also not eligible for most securities accounts (RRSP, TFSA, non-registered cash account). As a result, an ITF is a way to open a savings account for a minor.
- Capital Gain Splitting: All capital gains are attributed to the minor. As minors typically are at a lower tax bracket, this results in a lower tax rate.
- Irrevocable Gift: Any contribution deposited to the beneficiary is irrevocable and cannot be taken back for personal use.
- Teaching Tool: While an ITF is a good way to gift money to a child as they enter the adult world, it is also a tool to demonstrate the power of saving and compound interest. Not only can it be practically used to demystify the stock market, but it will ideally show them that they can make money too.
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