Submitted by nsscadmin on
Nova Scotia Securities Commission (NSSC) staff have been delivering presentations to several local high schools recently. Students attending these presentations are usually between 15 and 18 years of age, which means that they’re under the age of majority in Nova Scotia.
After delivering presentations on basic investing, which includes basics on TFSAs, RRSPs, and other registered accounts, staff have repeatedly been getting the same question. It goes something like “I know I’m not old enough to open a TFSA or brokerage account, but I want to start investing my money now. What can I do?”
Before we get into one possible answer to that question, a quick reminder that NSSC and its staff do not provide investment advice. We are not recommending or telling young people how to invest, or how they should invest. This post and all our posts are to provide investor education and information on investing. It is up to the reader to determine if investing using the accounts, products or methodology we share is right for them.
Now on to a potential answer to our question – informal trust accounts. An informal trust account (ITF) is a non-registered flexible investment account opened by an adult for a beneficiary (usually a minor) without requiring formal trust documentation.
An ITF allows an adult to invest money for a minor on their behalf. This is usually money provided by the adult, but the minor can also use money from a job or savings for the adult to invest.
An ITF can be set up at most financial institutions or brokerages and can hold most types of investments, including stocks, bonds, GICs, and also cash. We say most financial institutions, because in recent years some banks and financial institutions have stopped offering ITFs.
Before opening an ITF make sure you fully understand the rules and tax implications surrounding it. One important rule of an ITF is that the beneficiary automatically takes control of the ITF and all funds and investments in it when they reach the age of majority.
When it comes to taxes on investment growth in an ITF this can sometimes be complicated and confusing. Make sure you understand not only what the tax burdens are, but also who will be responsible for any potential taxes.
For example, interest and dividends paid on investments on an ITF are usually taxed in the hands of the contributors of the funds, whereas capital gains made from investments are usually taxed in the hands of the beneficiary. There can be exceptions to this, so if you are planning on opening an ITF ensure you get expert tax advice and information from a tax professional.
One final reminder, the NSSC does not provide investment advice or recommendations. An ITF may or may not be right for you. Do you research, ask questions, and consult an investment adviser and tax expert before opening any type of investment account to be sure it is right for you and your situation.