Leaving a Legacy

Grandchildren are the apple of your eye, and, just like children, they can be easy to spend money on! For some grandparents, spoiling one’s grandchildren is natural, especially if you are in a better financial position than when you were when raising your children.

Besides ice cream treats and the occasional gift, an impactful way to participate in your grandchild’s financial upbringing is to consider leaving a legacy. There are a number of ways you can accomplish this:

1. Contribute to an RESP for education savings 

A Registered Education Savings Plan is one of the most common savings vehicles for Canadians saving for a child’s future. Deposits of up to $2,500 per year will generate a 20% match from the Government ($500/yr Canada Education Savings Grant) and up to $50,000 total can be put into an RESP for a beneficiary. Anyone can open an RESP and grants accumulate based on contributions, so coordinate with the parents, if there is another RESP in place as the grant will be allocated to the first $2,500 (if more is being contributed, across all RESPs for the same beneficiary). You can also give money to the parents to contribute to an RESP. If a beneficiary doesn’t go to school, all money contributed goes back to the subscriber (the owner of the RESP), grants go back to the Government, and interest earned is taxed (if the beneficiary does go to school, the interest earnings are taxed in their hands when the money is withdrawn).

2. Match TFSA contributions for adult grandchildren

Since 2009, any Canadian resident over the age of 18 earns TFSA contribution room each tax year. This year’s contribution maximum is $6,000. To encourage savings, you could match your grandchild’s contributions. If they have a bi-weekly paycheque, $115 per pay from them and a match from you will be close to the maximum for the year. This is a much more manageable amount than a young adult trying to plan a strategy for saving $500/month.

3. Pay them to work

If you want to help children or teens save money for things they want, let them earn it. Anything can be a job. Grandfather Joe Gilgunn’s three grandchildren are designing bookmarks for him, at a dollar a piece.

“I used to give my daughters’ friends quarters for being polite and they jokingly still expect it when I run into them now—30 years later,” he says. “Earning small amounts of money to save and spend is one way I’ve seen children learn money management.”

For bigger savings goals—with teenagers, for example—you could assign bigger jobs or even challenges (“pay” them for volunteer hours at your Rotary or Lawn Bowling Club, for example).

4. Consider critical illness and permanent life insurance

Both permanent Critical Illness Insurance and Life Insurance can be valuable assets for grandchildren to have, well into the future. There are 20-year fully paid options for both these products as well as options for getting cash back or borrowing funds from the policy and plans start at $30-$50/month.  Speak with a licensed insurance advisor about what this could look like. Grandpa Joe is happy he did; “Paying for a Critical Illness policy for my grandchild is one way to provide some protection for them and especially their parents, if something were to happen, even after I’m gone. My children [the parents] would have to dig into their savings to pay their children’s medical expenses and any other associated costs. This policy on children is actually protecting the parents or grandparents from costly and unexpected medical bills.”

5. Gift cash; get legal advice if leaving other assets

In Canada, there is no gift tax, so you can freely give small amounts of cash to grandchildren—both minors and adults. However, assets such as stocks, houses (principal residence), other investments or appreciating assets could have tax consequences such as attribution rules. Be sure to consult with a lawyer if planning to give or leave gifts of this nature, especially to minors. If wanting to gift large amounts of cash, such as for a downpayment on a condo, there may be a request from a mortgage lender for proof that this is a gift and not an amount being loaned for repayment.

6. Name (adult) grandchildren as beneficiaries in your life insurance policy

You can name minors as beneficiaries but will also need to name a trustee who will then be in control and in charge of the funds until the child is the age of majority (19 in BC). As above, speak with an Estate lawyer about structuring your will when planning.

Helping your grandchildren with these long-term strategies is also a way for them to remember you—when they are going to school, saving money monthly, or using money that you helped them save. Keep your grandchildren learning and earning and give them a foundation for their future that will last longer than that toy they are desperate for.

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