In-Trust Accounts

­­Nearly every day, our clients pass along estate planning suggestions they have been offered by well-meaning bank staff, friends, neighbours, and the lovely gentleman who takes great care of the lawn. Unfortunately, these suggestions are frequently not accompanied by important information and, as a result, can lead to unintended and unfortunate outcomes if followed uncritically.

A common example of this is the idea that one should add one’s children on the title to one’s home to avoid probate. Sadly, this suggestion frequently comes without appropriate disclaimers. We regard this as an inadvisable strategy in many circumstances, and most folk we encounter are not aware of a number of significant potential downsides. Even in relatively rare situations where it may be a good idea, it should be approached (a) with caution and (b) with the benefit of qualified professional tax and legal advice for all involved. That, however, is not the topic of this post. It will likely form the focus of a series of posts later in the year, but for now, we will start with a few more bite-sized topics. In this post, we will discuss a suggestion sometimes proposed by banks and financial planners as an alternative to a formal trust: a type of account referred to as an “in-trust account” or “in trust for account” (sometimes called an “ITF”).

In-Trust Explanation

The promise behind an in-trust account is as follows: it is an easy way to set up a “simple” trust to benefit someone else without having to think too hard about all that pesky tax and trust law stuff. You can set up a trust without getting those darn lawyers and accountants involved! After all, they always have irritating questions and complicated documents, and they like to be paid for providing all that annoyance. Unfortunately, there is no such thing as simple when it comes to trusts. The tax and legal landscape surrounding them is treacherous and filled with traps for the unwary. Those darn lawyers and accountants want to nag you about the nitty-gritty and write detailed documents because the details are pretty important.

“Let’s set up an in-trust account for our granddaughter, Samantha,” you think, “that way we can set up a trust for her while keeping it simple and avoiding lawyers and accountants.” An understandable goal and an attractive idea, but in most cases, there will be better options to allow you to provide for little Sam.

Regarding in-trust accounts, we tend to agree with Marvin Toy’s, Co-author of Smart Tips for Estate Planning[1], statement, “they are better described as incomplete, ineffective, and ill-advised. … they are only good for causing confusion and legal disputes. There is never a good reason to have an account that is in-trust for another person.”[2]

Why do we generally concur with Mr. Toy’s assessment? Essentially, because the documents used to set up an in-trust account can lack certainty about vital considerations and come without important tax and legal advice. They may not sufficiently record who is or may be the contributor(s), the trustee(s), and the beneficiary or beneficiaries. They may or may not establish a trust, and that uncertainty can itself lead to a host of problems. Even if a trust is established, a great deal tends to be left unconsidered, unstated, and unplanned – a recipe for disaster. Further, the client and the person proposing the in-trust account and assisting with the paperwork to establish it may have limited awareness of the potential tax and legal implications.

As explained in Continuing Legal Education Society of British Columbia (CLEBC)’s 2022 Edition of British Columbia Estate Planning and Wealth Preservation, “the importance of careful drafting [of a trust] cannot be over-emphasized. … There are three reasons why one must take particular care when drafting a trust deed:

  1. Fundamentally, a trust is a conveyance of property. As such, the terms of the conveyance are fixed and unalterable, unless the governing trust deed provides otherwise.
  2. The trust relationship is a fiduciary one requiring the trustee to meet the highest standard of conduct imposed at law. Consequently, common-law rules governing trusts tend to be very strict and narrow. Similarly, the existing Trustee Act provides little expansion from this common-law approach. As a result, if it is intended that a trustee be granted more liberal authorities and powers than those permitted under rigid trust law rules, the drafter must have a good understanding of the common law and statutory rules, and the governing trust deed must, from the outset, expressly allow for that kind of flexibility.
  3. The mere form of a trust deed can create fundamental and irreversible tax problems under the ITA.

A properly drafted trust deed should, within its four corners, address all possible aspects of asset administration and entitlement, whether presently known or entirely contingent and avoid creating fundamental tax problems. It should also contain sufficient flexibility to accommodate future changes in trust or tax law (for example, it may be appropriate to include powers to amend or resettle trust property) [emphasis added].”[3]

A standardized bank form designed to set up an in-trust account almost certainly lacks sufficient detail to meet this standard. Omitted details can include fundamental issues about how a trust will operate, when and how it will end, how it will respond to changed circumstances, what powers the trustees will or will not have, and consideration of the tax implications for all involved. A lack of attention to relevant details can also mean that trustees are unduly constrained in what they can do and are exposed to excessive or unexpected liability. Simply put, by keeping the lawyers and accountants out of matters involving trusts, essential matters will likely fail to be addressed. This can mean that important considerations remain hidden until something goes wrong, and they become frustratingly apparent once it is too late to avoid or remedy the unintended outcome efficiently.

It is also important to note that a contributor to an in-trust account may be permanently giving up ownership of any assets contributed. Additionally, anyone named as a trustee may be exposed to liability. If a beneficiary of an in-trust account can show that the trustee strayed outside the lines of the “very strict and narrow” default rules governing trusts and trustees, the beneficiary may pursue a claim against the trustee personally. This can happen even if the trustee stepped out of bounds accidentally while acting in good faith. The trustee may have had no idea what those rules were or that they applied. Sadly, the contributor, the trustee, and whoever proposed the in-trust account in the first place may all have been unaware of these potential outcomes when setting up the in-trust account.

Especially when it comes to anything trust related, the details can be non-obvious, very important, and quite technical. A bare-bones document purporting to create trust may be easy to read and seem easy to understand, but it is masking a great deal of complexity below the surface. Those complications can have sharp teeth and lurk in dark abysses with names like the Trustee Act, the Income Tax Act, and the common law, waiting to bite the unwary swimmer in the Sea of Trusts. It is because of this lurking complexity that it is critically important to secure good legal and tax advice before you leap into any plan involving the words “in trust.”


In this post, we have only given a general overview of some of our concerns about using in-trust accounts. For a more detailed discussion of important considerations, we recommend the excellent 2019 article by Sandra Abley and Mollie Clark titled, “In-Trust Accounts: The Good, The Bad and The Ugly.” It can be found here.

[1] Read article »

[2] Jim Yih, Use caution with in-trust accounts for children or grandchildren, online: Retire Happy »

[3] §6.7

If you have questions about this post or would like assistance with any estate planning matters, we would be happy to assist. Please get in touch.