INVESTMENT PLANNING

You may have been shocked at just how much your kids raked in over this past holiday season. Clearly, giving cash in lieu of “stuff” is becoming more commonplace. Between those gifts and extra hours on the job in December, your young tycoons might be sitting on a sizeable sum. What can they do with that money besides fritter it away? They can invest it (or at least some of it).

Mutual funds are ideal in these situations because they offer instant diversification, you don’t need any investment experience, and there’s no need for ongoing management. There are many funds with brands that youth will recognize and may already support with their purchasing power.

And unlike a bank account, the balance isn’t connected to their debit card. Needless to say, this reduces the likelihood that their investment will be spent at the mall or online. If your young person is over the age of majority, he or she can hold that mutual fund in a TFSA and enjoy all the same tax-saving benefits you do.

If your youth is a minor, you’ll need to open the account “in trust” for him or her. Interest and dividends earned in an in-trust account will be attributed back to you for tax purposes, but capital gains are not. If capital gainds are realized down the road, they’ll be taxed in your child’s hands, at a rate that’s probably much lower than your own.

If you’re looking at a significant amount to invest for your child, you may want to consider setting up a formal trust. The benefit here is that you get to dictate the trust’s parameters, such as when the beneficiary can access the funds or how they can be spent. Note, however, that there would be setup fees as well as ongoing expenses in administering the trust.

We’d be happy to explain your investment options and help you make the choice that’s best for you and your child.