This page goes through the process of opening an informal trust investing account. It is a paper application and people often get stuck on some of the questions and finding the right forms. Don’t worry, I have done some leg work to make this easy.
If the adult holding the account already has their own personal account at Qtrade, it can speed the process. The informal trust will have a separate client number but be linked to their dashboard and count towards the thresholds to get special benefits and premium service (Investor Plus). You can open a personal account pretty quickly using the online process. Whether you have an extra personal account or not, the informal trust will be a paper application sent together with the supporting documents outlined on this page.
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Informal Trust Basics
What is an informal trust?
An informal trust is an investing account held “in trust” for someone under the age of 18 (since minors cannot have their own accounts). From a legal/tax perspective, it is not really a trust (a separate legal entity). It is technically, just the adult acting as an agent for the trustee with a fiduciary duty to them. So, from a practical standpoint, an informal trust is a way that parents or grandparents can invest for their progeny beyond an RESP. It is also a way to teach kids about investing and get them started. For example, our daughter puts her student job income into an informal trust that my wife has for her.
This account is officially in the adult’s name, but the adult irreversibly gives up the right to take back any money put into the trust for personal use. If you do take money out, you must clearly document how it is for the beneficiary’s benefit and be prepared to prove that in court, if challenged. You sign an informal trust agreement for Qtrade to clearly delineate who the account holder and beneficiaries are.
This is in contrast to formal trust which requires more legal documents, a board of trustees, and annual filings. You can read more about informal trusts here. Seek professional legal and tax advice as you deem necessary for your situation (I am neither).
What happens once the beneficiary turns 18?
After the minor turns 18, the account holdings can become theirs. You don’t have to give it to them at age 18, but you also cannot ever take the money back yourself at any time. The contribution was irrevocable. You must also give it to them if they ask for it – it is legally theirs. At Qtrade, they would then open their own account and use an internal transfer form to move the investments from their trust to their personal account without triggering a tax event.
How is investment income taxed?
Capital gains in the informal trust to be attributed to the minor for tax purposes.
Interest and dividends from investments purchased with contributed money are attributed to the adult that made the contribution and taxed as part of their income.
Income generated from investments made from re-invested dividends/interest within the account (second generation income) or from income directly linked to the minor (like student jobs, Canada Child Benefit, a CPP pension dependent survivor benefit, or an inheritance) is taxed in the minor’s hands. If using income directly linked to the minor, keep a copy their T4 slips or payment receipts to prove it, if needed.
An easy way to avoid the tax tracking pain-in-the-butt is to use some of the Horizon Corporate Class ETFs, if you research them and feel that they suit you as a DIY investor. They are designed to produce only capital gains, provided Horizon manages them well. This is not specific advice for you, but my daughter uses HXT.TO (TSX 60 which is basically Canadian Large Cap value dominated by the banks) and HXQ.TO for US (NDX 100 which is US Large Cap Growth and excludes banks). It is not as diversified as an All-In-One ETF, but 160 of the largest companies in North America is pretty decent and a good trade-off of hassle for us. If she needed bonds, she would use HBB.TO, but hers is an account that she won’t need to touch for >10 years and is very aggressive to teach her what volatility looks like.
Step 1: Gather what you will need
Photo ID For Adult Trustee(s)
Photocopy (or printed photo) of both sides of Government issue photo ID (like a driver’s license or passport).
Copy of Birth Certificate (if a minor) or Photo ID for beneficiary
Banking Information to link to your bank account (if doing that)
A void personalized cheque with your corporation’s name on it, or a direct deposit form printed from a pdf file from your online banking.
Account statement if you are transferring investments/cash from another brokerage.
This makes filling the account transfer documents easy. Make or print a copy to include in your package to make the transfer go smoothly.
If you haven’t had financial operations to build a credit file for at least 3 months for Qtrade to request a credit file (almost no one).
Qtrade will do a credit check (or dual credit check if you have only been building a credit score for 3-12 months). If under 3 months, you need an original utility bill, bank or credit card statement, or CRA notice of assessment with your name and address on it.
Step 2: New Account Application Form
You can download a blank application from the forms section of the Qtrade site or I have made a partially filled application. It is pre-filled with the usual answers for an informal trust to make it quicker and easier, but you still need to personalize it and double check that it is correct for your situation. I will go through each section of the form along with some commentary.
Section 1: Account Details
For client ID, if you have other personal Qtrade accounts, you can use your client ID (6 number/letter code beside your name on your account summary). The informal trust will get its own ID, but your ID can speed up the application. If you do not have one yet, no problem, just leave it blank. Unless you are an aggressive and sophisticated investor, you will likely want to open a simple Cash account. Canadian dollars is sufficient for most people. Check the informal trust box.
Section 2: Applicant Information
The information in this section is for the adult holding the account in trust. If two holding as a joint account, then you repeat for the second person in section 3.
Section 4: You don’t do. It is not a registered account.
Section 5: Investment Profile
This is a legal requirement for opening any investment account anywhere in Canada. It is basically their “know your client” information in case there are flags about your ability to invest. Don’t obsess about being super-precise – a ballpark should be ok. It is for corporate income and property (not your personal house & accounts).
Section 6: Other Interests In The Account
The answer to these questions will be “no” for most of us but check if any apply to you. Possible exception if a spouse or someone else will have trading authority to manage the investments.
If you put yes for trading authority, then you also need to fill, sign, submit the trading authority form. The person with trading authority will also need to submit a copy of their photo ID.
Section 7: Electronic Funds Transfer
Electronic fund transfer (EFT) is to link your Qtrade corporate investment account to whatever bank account you use. This makes it easy to move money back to your bank account electronically. In our case, we linked my daughter’s personal account to her trust account. So, we could easily move money back to her if needed. If you ever move money back to your own bank account, be very careful to document how the money was used for the beneficiary’s benefit. With receipts.
You can also bring money into your Qtrade account using EFT, but the “bill payment” method is faster. Money deposited through EFT has a 10-day hold. Once you have your Qtrade corp account number, you can use that to make a payment to Qtrade Investor to that account number from your bank account. That makes for a transfer and availability of <24h usually.
In addition to ticking yes in the form above, you also need to print out an EFT form, fill it, and attach a void cheque or a bank provided account information printout.
You can leave the client ID blank since you don’t have it yet. Attach your void cheque or banking info.
Section 8: Information Required By Regulators
Read the questions and answer for your situation.
Section 9: Communication With You About Your Securities
Section 1: Disclosure of ownership. You can object to sharing your information. However, if you put in section 2 that you do want shareholder materials then you will have to pay for delivery. If you share your information, the materials in part 2 usually get mailed by the company for free.
Section 2: Receiving Materials: Personally, I don’t vote at shareholder meetings and reems of company info won’t change my index investing. Nor do I want the big booklets from reports clogging my mail-box. So, I opt to not receive materials and save some trees. You will need to decide what makes you comfortable. If you are planning to trade penny-stocks, you will want materials (plus anything else you can get to offset the stress and financial discomfort of that strategy).
Section 10: Consents & Acknowledgements
Pretty self-explanatory. A bunch of legalese & you are probably in your home office or something.
Section 11: Read & Sign/Date
Section 12: Referral (Your chance to support me to support you at no cost)
Please put The Loonie Doctor as your referring institution. You don’t need to put a name, branch, or email. I get a small referral fee that I hope will someday offset the costs of running the site. There is no cost to you, and it makes it easier for me to help you. I don’t get to see or mess with your accounts or anything crazy like that. I am happy to provide mentorship and tools to help, buy you do the DIY investing.
Section 14: Checklist & Credit Check.
The top part of this section is a checklist. Note, that there are a couple of items on the checklist that you still have to do (account transfer if you are doing that) & an informal trust agreement (filled and signed by you) that will be discussed next.
Step 3: Informal Trust Agreement
It is easy and takes about five minutes. Download the form from Qtrade. It is pretty straightforward. You put your name at the top as the account holder, “see application” for the account number, and the beneficiary’s information in section 2. You need to provide a copy of their birth certificate if under age 18, or government photo ID if over age 18. If over 18, they need to answer the questions about insider trading and financial professional status and sign in section 2. The adult account holder (trustee) must sign in section 3.
Step 4: Transferring Account/Funds From Another Brokerage
Grab or print out your account statement from your old brokerage/managers. You will need to submit that as part of the package and it helps you complete this part easily. Download the transfer account form from Qtrade. You just need to fill it out & Qtrade will deal with your sending brokerage/manager directly to make it happen.
In section 2, indicate “informal trust” as the account type & don’t worry about filling in your Qtrade account number etc. (since you don’t have it yet). Don’t forget to sign/date section 3 after filling it out & attach a print-out of your most recent account statement or screenshot of your account. If doing a mixed or partial transfer, you will need to fill out the appendix on the last page. If transferring stocks “in kind”, it is a bit gray, and I have not been able to get a consistent answer from accountants. It is probably cleanest to transfer “in cash”. That means, the holdings are sold, you will need to pay your capital gains tax, and the cost basis for investments in the trust start fresh. Definitely talk to your accountant if you are considering a transfer “in kind”.
I have written another page that explains all of the different types of transfers. Note that you can only transfer from a personal non-registered account (not a corporate, TFSA, RESP, or RRSP). If there is a major delay in the transfer, you can inquire at firstname.lastname@example.org. We had that happen once and they fixed it quickly.
Step 5: Final Check & Mailing Address
Double check that you have everything done, printed, & signed.
Double check that you have everything done, printed, & signed.
- New account application (Step 2) done & signed/dated in section 11.
- Informal Trust Agreement (Step 3) done & signed/dated by beneficiary in section 2 if over 18 and by trustee account holder(s) in section 3.
- Electronic Funds Transfer Form (EFT in step 2) done & signed/dated on page1. Attach a void cheque or account info printout from bank.
- Account Transfer Authorization Form (Step 4) if transferring from another brokerage/manager. Done, signed, dated on page 1. Attach your most recent account statement or print out a screenshot of your account.
- Copy of Photo ID for you (and joint trustee), anyone with trading authority, and beneficiary (if over 18). If the beneficiary is under 18, a copy of their birth certificate will suffice.
- If <3 months of building a credit record, then Credit or Bank Statement, Utility Bill, cheque, or government document with your name and address on it for credit check.
It is on the top of the application form:
Aviso Wealth / Qtrade Direct Investing
700 – 1111 West Georgia Street
Vancouver, BC V6E 4T6
What happens next? Expected timelines.
Your account will usually open about a week after your application arrives.
You will get an email from Qtrade saying so. If you have filled something out wrong, are missing something, or attached a substandard photo – Qtrade will contact you via email. It is not a big deal. You can usually fix the problem and reply to the email with a scan/photo fixing the missing piece (unless it is a hardcopy requiring signature). If you don’t have a login and password already, then they may telephone you to confirm and instruct you to get it set up.
When you can start trading depends.
If you use electronic funds transfer (EFT) to deposit cash. With EFT, the money will appear in your new account the day after it opens. However, you can’t use that cash for 10 business days due to the hold period. If you try to use that money to place a trade, the trade will get declined. No penalty for that, you just need to wait and try again later when the holding period is passed.
The faster method to put cash in to use it is the bill payment method. Once your Qtrade account is open, use the pay bill option from inside the online banking section of whatever bank you use. You would pay to Qtrade Investor and use your Qtrade account number.
If you transferred funds from another institution in cash or kind, it can take a while for the transfer to actually happen. It depends a lot on the sending brokerage and can take a couple of weeks to a month. You may also have some back and forth, if the sending firm tries to “save the account“.
In the meantime, you can spend some time choosing your asset allocation, considering your asset location strategy, and what stocks, funds, or ETFs you want to use to invest with.