An in-trust account is an “informal trust” that lets you invest money on behalf of a child. It’s much easier to open than a normal trust, but it’s also less recognized in the eyes of financial and legal authorities if any tax or account ownership issues arise. That said, an in-trust account can be a cheap and effective savings tool if you follow the steps to set up a solid contract.
An in-trust account lets you save or invest money on behalf of a child until they are old enough to carry out their own investments. Much like a regular trust, any cash or investments you put into an informal trust account will be assigned to the child as soon as you make the transfer. This means the contributions can’t be retrieved or revoked if you need the money back since they will officially belong to the account-holding child.
In-trust accounts in Canada work in the following ways:
To hold something in trust means that you are putting it away in a safe place for the later use by someone else (the person known as a beneficiary with an in-trust account).
The main differences between a regular trust and an in-trust account are outlined below:
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You’re more likely to have your in-trust account accepted as a legal trust by the Canada Revenue Agency and other institutions if you create a certified document that outlines the following components very clearly:
As a donor for an in-trust account, you’ll pay taxes on any interest or dividends the account accumulates even though it is in your child’s name. However, there are a few exceptions that will allow you to split your income with your child. This means your child will be taxed (usually in a much lower income bracket) when they withdraw money from the account.
Taxes can be attributed to the child in the following circumstances:
Some in-trust accounts may be considered bare trusts for tax purposes. Certain bare trusts will be subject to the CRA’s trust reporting rules for tax years ending on or after December 30, 2026, although exceptions apply. The CRA has not yet provided all details about how the new rules will apply to reportable bare trusts. If you have an in-trust account, check the CRA’s latest guidance or speak with a tax professional to determine whether you’re obligated to file a T3.
Minors aren’t allowed to buy stocks directly in an informal trust since they aren’t legally allowed to enter into any type of financial contract in Canada. This means that investments can only be transferred into the trust by the parents and the investments will be held “in trust” for the child until they reach the age of majority in their province.
There are a couple of differences between in-trust accounts and Registered Education Savings Plans (RESPs) you should be aware of before you start saving for your child’s education. The biggest difference is that an RESP is specifically designed to save for post-secondary education and you’ll get free money from the government for every year you put funds away.
In-trust accounts can be used to save for a child’s education but the funds aren’t earmarked for this use. This means that once your child turns 18 or 19 (depending on the province), they can technically spend the money on whatever they want. You also won’t collect government grants on any money you save.
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When your child turns 18 or 19, they will be issued with the same level of control over the in-trust account as the trustee has. This means that they can help to manage investments and make withdrawals.
The trustee won’t automatically be removed from the trust when the child reaches the age of majority in their province. However, most trustees will begin the process of transferring the trust fully over to the beneficiary at this point.
Advantages of an in-trust account
Drawbacks of an in-trust account
You can hold cash, fixed-income assets, equities, property and other investments in an in-trust account. Below are some examples of commonly held assets and investments.
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You may be able to open an in-trust account at most major banks or with some private investment firms. You’ll need to ask your financial institution if this is an option, and find out how much you might have to pay in fees to get started.
You’ll likely need to fill out an application and submit the required documents to name your trustee and beneficiary. You should also prepare a separate document to show that you meet the criteria of a legal trust.
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Opening an in-trust account can be cheaper and easier than opening a formal trust, but it may come with more risks. It pays to make sure you set very clear expectations for your in-trust account from the beginning – for example, by clearly identifying your trustee and beneficiary. If you’re worried about potential tax implications, you may want to spend the money to set up a formal trust.
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