In theory, these accounts should be set up with a contributor or settlor (typically the parent or grandparent who opens the account), a named trustee (usually the contributor or settlor) and a beneficiary who is the ultimate owner of everything invested (typically a minor child). Keep in mind, the beneficiary is entitled to take legal action if the trustee declines to give him or her access at the age of majority. For Will Trusts, we need to see the Will as well as a Grant of Probate that confirms this is a valid Will. If the contributor chooses to close the account despite the fact that it is an irrevocable gift, there may be serious consequences, including back taxes and penalties as mentioned. Once the beneficiary reaches the age of majority in his or her province, he or she becomes legally entitled to the same degree of control over the account as the trustee, generally with the intention that the trustee will eventually transfer all control over the account to the beneficiary entirely. The contributor will lose control over the funds once the minor beneficiary reaches the age of majority, at which time the beneficiary should receive full access to and control over the funds. Properly characterize your client trust account. Open an RESP for the child or grandchild. These accounts have gained popularity as an easy and inexpensive way to set up a trust for one’s children or grandchildren while also enjoying tax benefits. Trust assets are usually investment-related, such as property, stocks and bonds. Contributions made to an in-trust account are not tax-deductible. Got questions about judicial independence? An asset is an economic resource that a trust owns. When clients decide to invest for their children’s or grandchildren’s futures, they are faced with a variety of investment options. This will give the contributor (known as a “subscriber” in the context of an RESP account) increased control over spending of the funds once the minor reaches the age of majority, and the subscriber will receive the added benefits of the Canadian Educations Savings Grant. A formal trust is typically evidenced by a document called a Deed of Trust or a Deed of Settlement, so there is no question as to whether those certainties exist. They are also commonly set up with one individual acting as both contributor and trustee. The beneficiaries you name in your living trust receive the trust property when you die. […] One of the main benefits of a trust account is that it allows the trust's creator, called the "grantor," to establish their own terms for how they want their assets managed and distributed to the beneficiaries. This arrangement allows for income-splitting without the risks associated with an informal trust while creating greater certainty. If the contributor dies before the beneficiary reaches the age of majority then, going forward, all future income earned from the funds in the account will be taxed in the child’s hands. Lisa is the single owner of one informal trust/POD account with a balance of $450,000. Once the child reaches the age of majority, all of the income is taxed in his or her hands. The adult is then responsible for investing for the child and signing the contract on behalf of the child. Define trust account. First, if the contributor is also the trustee or if the account has been otherwise set up so that the assets can only be disposed of by direction of the contributor, then all of the income may be taxable in the contributor’s hands under section 75(2) the Income Tax (Canada) Act. As a trustee, you may need to use the Trust Accounting Income (TAI) formula to calculate the amount of income from the trust that you can distribute to beneficiaries. The funds can be used for anything that would benefit the child or grandchild. The account might be construed as having established more of an agency relationship between the contributor and the beneficiary for investment purposes. Without formal documentation of intention – as well as definition around key issues such as how the funds should be managed, how long the trust will continue and how assets can be distributed to the beneficiary – things can get messy. If the in-trust account is construed as a legal and valid trust, any contribution is an irrevocable gift. The account is set up as a trust because children under the age of majority cannot enter into binding financial contracts, nor can they accept a gift under a will. 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