An in-trust account is a great way to save for a child’s higher education. With an in-trust account, the investor manages the money for the child until the child reaches the age of majority. At that point, the trustee can make any necessary arrangements.

You can contribute as much money as you want.  All capital gains may be taxed in the hands of the child.  You, as the investor, are taxed on all income including interest, dividends, foreign, and other income if earned while you are a resident of Canada during the applicable year.

If funds for an in-trust account come solely from Child Tax Benefit payments or an inheritance, income is taxed in the hands of the child.

Money stays in the hands of the child if he/she decides not to pursue a post-secondary education.  Some benefits of an in-trust account include:

  • There is no maximum limit to what can be contributed on an annual or total basis through an in-trust account.
  • If the child does not go on to post-secondary education, the child may use the money for any other purpose.
  • If you contribute to an in-trust account set up primarily to provide capital gains, the resulting tax on capital gains, if any, may be paid by the child. And since a child will normally have a lower taxable income than an adult, less tax, if any, will be paid and more money would be available for the child’s educational expenses. The income (interest and dividends) generated by the investments may be taxed in the hands of the contributor.