Firstly, let’s clarify a point form last week. The CRA is waiving the late filing penalties for 2023 and not the filing requirement.
The CRA updated its guidance on March 12, 2024 to clarify that it will only apply the gross negligence penalty for failing to file a 2023 bare trust return in limited circumstances. Previously, the CRA announced that the basic late-filing penalty will be waived for bare trusts filing a 2023 T3 return (including the new T3 and Schedule 15 “Beneficial ownership information of a trust”) after the filing deadline.
Now, in-trust for accounts. Often, parents wish to gift money to minor children and have the money invested in a segregated fund. This will probably be after RESP savings have been done.
Here’s how to set up an informal trust for a child using segregated funds. Each carrier has its own recommended structure. Here is a summary for a few of our carriers:
Carrier | Owner | Annuitant | Beneficiary |
Assumption Life | Parent in trust for the child | Child | Anyone other than the child |
Desjardins | Parent in trust for the child | Child | Estate of Child |
Equitable | Parent in trust for the child | Child | Anyone other than the child |
Empire | Parent in trust for the child | Child | Parent |
Industrial Alliance | Parent in trust for the child | Child | Legal heirs |
Manulife | Parent in trust for the child | Child | Estate of Child |
RBC Life | Parent in trust for the child | Child | Parent |
Beneva | Child, to comply with Quebec regulation, rather than “Parent in trust for child”, Beneva uses the term “Tutor”, which is a legal tutorship (including the parent of an investor who is a minor) | Child | Estate of Child |
Another thing to remember is, once the child reaches the age of majority, they can request to become the owner of the contract and the parent can not stop this from happening. The carrier is obliged to do the ownership change. In the situations where the parent is the beneficiary, to keep control after the child reaches age of majority, the parent can be set up as an irrevocable beneficiary.
It’s also important to understand the Attribution Rules when parents gift money to children. Here’s Manulife’s piece on the subject. In general, dividends and interest will be taxed in the parent’s hands and capital gains in the child’s hands.
As always, we look forward to your comments.
