A Beginner’s Look at Gifting to Grandkids

Let’s be honest, most grandkids wind up very spoiled thanks to their grandparents! Birthdays, holidays, presents, dinners and candy are common expenditures when you’re a grandparent.

If you’ve ever thought about giving your grandkids something different, something longer term, or something more meaningful, then you’re not alone! Finding ways to give your grandkids a boost with their future college tuition or down payment on a first home is a big financial goal for many Manitobans. But is there an ideal way to go about creating that bigger gift?

What to avoid. Before we dive into what you “can” or “should” do, let’s rule out what you shouldn’t do. In general, you should avoid setting up any financial instrument that is: illiquid, problematic for income tax, or problematic for estate planning.

Cash in a piggy bank? It doesn’t grow. Money in your RRSP? Potential tax liability. Tax Free Savings Account? Can’t be owned by a minor. There are lots of financial vehicles that are great for some personal goals, but really poor for intergenerational gifting.

Where to begin. Look to set a clear goal for how you want your gift to be used. If you want to help with tuition, specify that goal! Having an articulated vision for your gift will enable much better decision for “how” to maximize the value of that gift.

What are some ideas? There are a multitude of options when it comes to gifting, from trusts to life insurance to registered investment plans. Here are a few of the most common:

• If education planning is your goal, consider contributing to a Registered Education Savings Plan (RESP) with your grandchild as the beneficiary. RESPs can earn various grants and bonds to multiply the effect of your dollars. Annual contributions are limited per beneficiary, so be sure to co-ordinate your contributions with their parents!
• If your grandchild has a lifelong disability, consider contributing to a Registered Disability Savings Plan (RDSP) instead. RDSP grants can be 10-15 times higher than the Canada Education Savings Grant associated with RESPs! This simple account opening can be transformative on your family’s ability to care for your grandchild in the future.
• If you want a multiplier effect on your dollars, with flexibility on how the funds are used, consider using a cascading life insurance policy. You can own and fund the policy, using the grandchild’s parents as the lives insured. If the policy has cash values, the money inside the policy can be used well in advance of a death benefit, for both lifetime access and a large estate value.
• If you want flexibility with how the contributions are made, flexibility with how funds are withdrawn, but don’t want your grandchild to access the funds until they’re responsible adults, consider a trust account. You can pick an investment strategy that aligns with your chosen timeframe and fund the trust at a pace that suits your budget.

Ultimately, the best way to create a legacy gift for your grandkids is to talk through your wishes with your Financial Security Advisor. They can help you design and implement a strategy that is tailored to your goals and your family dynamics, regardless of circumstance. Multi-generational gifting doesn’t need to stop with birthday presents and it can start anywhere you wish!