Giving back to your grandchildren

For many grandparents the best part of having grandchildren is the fun you have in spoiling them. Instead of giving them the latest toy or gadget this holiday season have you ever thought about giving them a gift to help them secure their financial future? Here are three strategies grandparents can use to leave a lasting financial legacy:

1. Leaving a legacy

By setting up an informal trust account, you can make irrevocable gifts of cash or securities to your grandchild. An adult (the trustee) administers the account until your grandchild reaches legal age, which is determined by provincial law.

Keep in mind that assets in an informal trust account must be used for the benefit of the minor. Consult with an estate-planning lawyer regarding your options. 

2. Helping with education costs

Anyone can open an RESP account for a child and make contributions into that RESP for 31 years from the open date. According to the Government of Canada there is no annual contribution limit and the lifetime contribution limit is set at $50,000 (including all contributions made prior to 1998).

You can receive the Canada Education Savings Grant (CESG) on the first $2,500 in contributions per year, or up to the first $5,000 in contributions, if sufficient carry forward room exists.

3. Consider gifting your assets as part of an estate plan

Many people have discovered that gifting assets while they are still alive may be a valuable estate planning technique for passing wealth on to their adult children or grandchildren. Remember to talk to your tax advisor about any potential tax implications where gifts are made.

One of the benefits of making a gift is that it can potentially reduce the size of your estate that may be subject to taxation on death. A smaller estate size could potentially lower probate, executor and legal fees.

But perhaps the most important advantage of all is that you get the satisfaction of seeing your gift help your children while you are still alive.

Be sure to work with your lawyer to ensure your gift is legally enforceable, generally there must be evidence of the gift giver's intention to make a gift, as well as a physical transfer of assets to demonstrate that intention.

No matter what you decide to do, remember to balance your desire to help your grandchildren with your need for retirement income. Your financial advisor can work with you, and your team of professionals, to help ensure your strategy incorporates all your financial goals.