As grandparents or grandparents to-be you are invited to join us for a free private session or seminar.

Investing for Your Grandchildren

As grandparents, you are probably very familiar with giving money to your grandchildren. Whether your gifts are in the form of toys, clothes, trips or dinners out, or a few dollars slipped here or there, you are already a generous grandparent. Now, you might have started thinking about what sort of a long term impact you can make. Sure, you will still spoil your grandchildren on a regular basis, but having an investment plan to save for your grandchild’s education, first home, travel, or other important purchases is an important way to give your grandchildren a head start. There are a few ways you might consider saving for your grandchildren’s future – let’s take a look at some of the basics.

RESPs

Registered Education Savings Plans allow family and friends to contribute to a plan to save for a child’s education. RESP’s have become popular ways to save for education since the introduction of the Canada Education Saving Grant (CESG) in 1998. Through the Basic CESG, the federal government will contribute 20% of your annual contribution to the plan – up to $500 per child per year. This Basic CESG is one incentive to contribute – the Additional CESG, Canadian Learning Bond, and various provincial savings plans are others. With the added bonus of these Grants and other programs, the advantages of investing in an RESP for your grandchild’s future are clear. As well the tax benefits of RESP’s are numerous, making RESP contributions one of the most popular ways you can contribute to your grandchild’s educational savings.

The Ins and Outs of Inheritance

If leaving an inheritance to your grandchildren is part of your financial plan, doing your research and talking to an expert is crucial. Collecting an inheritance is often not simple, especially in respect to taxes.
Contrary to what some people will have you believe, there is no ‘gift tax’ in Canada. This is good news for your children and grandchildren, who won’t have to include any monetary gifts or inheritance you leave them in their income. But be careful – any capital property (which includes investments and any real estate other than a primary residence) which is given as a gift will be deemed to have been ‘sold’ by the person who gave the gift, who will have to pay tax on any capital gain. Something else to watch out for is your Retirement Income Fund – all withdrawals from your RIF are taxable. You’ll want to talk to your financial planner about these and other issues regarding taxes and your will. Until then, you might want to think about other ways to help secure your grandchildren’s financial future.

Savings Bonds

Canada Savings Bonds are another traditional choice for grandparents. Offered for purchase between April and October every year, Bonds offer a minimum guaranteed interest rate and are available in a variety of denominations. They have a ten-year term to maturity, and can be purchased with regular or compounding interest. Savings bonds are a nice option as they have a relatively low minimum purchase amount of $100. Bonds can make a nice Christmas or Birthday gift as they have the added benefit over cash of being a beginner lesson in savings and investment for your grandchildren. While historically bonds have performed well (offering rates as high as 18% per annum in the 80’s), more recently their performance has declined.

High Interest Saving Account

This option is becoming more popular for grandparents as attractive, flexible, and online accounts begin to be offered. If you have online banking, being able to instantly add funds to your grandchild’s account right from home is certainly an advantage of a savings account. The funds can be earmarked for education, travel, a new home, or something else personalized to your grandchild’s future goals. Another nice thing about saving for your grandchild through a bank account is that if you are a seasoned investor yourself, you can then discuss with your grandchild how they might want to start investing. Passing on money management and investment strategies to your grandchildren as they grow is a lasting gift more valuable than the dollar amount in their account.