Setting Up In-Trust Accounts for the Grandchildren

Setting Up In-Trust Accounts for the Grandchildren

It’s back to school time and one of the hot topics is about investing for children’s education.  Lots has been written lately about RESPs, but just recently I wrote about another way to save for your children through very popular in-trust accounts.  In the article, I talk about why people should use caution before using in-trust accounts for kids or grandkids.  One of the best ways to highlight the concern over using in-trust accounts is to look at a story about John and his 4 grandchildren.

The Story of John and His 4 Grandchildren

John was very proud of his four grandchildren: Sam, Jay, Phil and Jennifer.  John wanted to set some money aside for his grandkids’ future and set aside some money as a legacy of sorts.  His daughter Sara had already started a RESP for each of the kids so John’s financial advisor suggested opening up four separate in-trust accounts for each of the grandkids.  This seemed like a great idea because the funds did not have to be used for education only.  The advisor said the money could be used for pretty much anything.  John certainly hoped the money would be used productively, such as for buying a home, or starting a business, or – best of all – invested for the future.  Was opening up the in-trust accounts really a good idea?

When Sam reached the age of 18, he had already dropped out of school and developed a drug problem.  John was still obligated to give him the in-trust money on Sam’s 18th birthday, which was eventually used to buy more drugs.

When Jay turned 18, he used his in-trust money to take a year off and travel around the world . . . and pay for his girlfriend to go with him.  They broke up three months later.

Phil took his in-trust money and invested it into a nightclub business venture that one of his friends started.  The venture went sour and Phil lost everything.

Jennifer went to university.  She paid for tuition using the RESP that her parents set up.  In fact, she got all the RESPs because none of her brothers went to university and the RESPs were transferred to her.  As a result, she used the in-trust money from her grandfather to buy a car and some furniture.

John was disappointed with how his legacy for his grandkids was used, except for Jennifer’s share.  He consoled himself by thinking that one out of four is better than none out of four.

In retrospect, John would have been better off setting aside money for his grandkids in an account in his own name.  That way he could have retained complete control of that money.  Although he would have lost some tax benefits of having the capital gains taxed in the hands of the grandkids, the loss of tax savings was a small price to pay for having more control and say over the use of the funds.  He would have had the ability to give the grandkids the money from that account whenever he wanted to – rather than on their 18th birthdays.

If John wanted the grandkids to get the money when he died, then he could have said so in his Will.  The in-trust accounts did John and his grandchildren no favours.


  1. Echo

    Good article Jim! Couldn’t you set up the trust in a way that it paid out only at certain milestones in a child’s life? Like for a wedding, or a down payment on their first home…? That way it’s sort of protected against irresponsible choices and is more in-line with the wishes of the person who set-up the trust.

    • WealthWebGuru

      thanks for the comment echo. You can do that in a formal trust but not an informal trust. as Mike alluded to there is a cost to creating a formal trust.

  2. Mike

    Excellent article. This is my argument against setting up an in-trust account in lieu of an RESP. You lose control of the money.

    If you give an 18 year old $50k, will he/she buy a sports car or go to school? 😉

    Echo – not sure but maybe those types of trusts are more expensive to set up? (I’m guessing here).

    Different age restrictions might help, but they might also help foster resentment against you for imposing them. Plus, if your kid is a f***up, then it probably doesn’t matter what age they get the money. 🙂


  3. SophieW

    I admit I don’t know much about in-trust funds – I’m not in that stage of my life – but 18 seems like a really young age to ‘inherit’ a whole whack of cash… 25 or even 30 year olds tend to have a much bigger appreciation (and need) for lump sums of money. Especially if RESPs are already well funded!

    Can you stipulate the age that the benefitiary gets the money? That – IMHO – could ensure a better use of the money.

    Also, does the beneficiary have to know the funds even exist? If it’s a happy surprise, rather than an expected obligation could cut down on the resentment Mike mentioned above.

    • WealthWebGuru

      @Sophie – Can you stipulate the age that the beneficiary gets the money?
      Not with an informal trust. Only with a formal trust

      Also, does the beneficiary have to know the funds even exist? In the linking article – – I explain that “Once you put money into an in-trust account, the money belongs to the beneficiary (child). This gift is permanent – there are no exceptions.” The beneficiary (your child or grandchild) takes control of the funds at the age of majority, which is either 18 or 19 depending on the province you reside in. That’s technically the law so whether you tell them or not, legally it’s their money.

  4. Charlotte Bryant

    Whichever way you look at ti 18 is waayy tooooo young for a kid to inherit $$$$$$

  5. Robert

    I live in the US.

    I have a son, now 45, living in Eastern Canada and unable to handle money. I’d like to set up a $200,000 Trust for him, that gives him a few hundred dollars each month. Can you help me with advice/suggestions?

    Many thanks


  6. Jennifer

    As Executor to my grandmother’s will, I wish we had set things up differently as I’m experiencing this situation right now. 18 is way too young these days (for most kids). If the intention of the money is to help fund higher education, there should be a stipulation that the funds go directly to the institution for payments required. Fortunately, I have made this change to my own will so that my niece gets the money in a more controlled way should I pass on suddenly (I’m only 45). This is especially true in families where there are issues of divorce, alienation etc. which unfortunately, is my case.

  7. Cindy

    What if the will sets up a trust that says the child gets the money for education but the child doesn’t go on to higher education and starts working right out of high school. What happens to the money? Can the child still inherit?

Leave a reply

Your email address will not be published. Required fields are marked*