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.

ITF

An ITF is used to open a securities account for a minor. It has the additional benefit of potential income splitting.

ITFs

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

Child Age

Contribution Source

Dividends/Interest

Capital Gains

>18

All

Child

Child

<18

Gift

Parent

Child

<18

Non-T4 Income

Parent

Child

<18

T4 Income

Child

Child

<18

Inheritance

Child

Child

<18

Canada Child Benefit payments

Child

Child

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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For 26 years Pinkney Financial Services has been a very important part of my financial future. I’m most grateful for everything they have done for me over these many years.
Frances Burke
Retired Edmonton Public Teacher

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