As a grandparent, it’s entirely natural to want to give money and gifts to your grandkids. Is this the best way to help them out financially? Here are three ways to be the best grandparent you can be by setting up a financial security net for your grandkids.
Set Up Life Insurance
Your grandchildren can benefit when you have a life insurance plan in place that names them as a beneficiary. Upon your passing, the death benefit paid from a life insurance policy is a tax-free, lump sum amount. However, if the recipient is under legal age, the death benefit (plus the interest it earns) will be held in trust by the province until they reach legal age. That is unless you set up a trust or designate a trustee or administrator to hold the proceeds of the death benefit in trust on behalf of the minor.
Contrary to popular belief, trust funds are not just for the elite; they are for everyone. If you want to start a trust fund, there are also a number of different accounts you can set up to distribute funds to your grandkids. A custodial account, for instance, gives you control over the account until your grandchild turns the legal age.
Get Your Grandchild an RESP
If you want to give your grandchild a gift that will benefit them the most, an RESP is the right choice. The gift of education is always a wise one, especially when schooling is rising in cost. Best of all, this is a tax-sheltered program that allows you to make non-deductible contributions annually or in a lump sum up to a total maximum value of $50,000 per beneficiary. When withdrawn, the funds are then paid out as an Educational Assistance payment. If your grandchild decides not to go to school, the contributions are paid back to you tax-free.
If you take advantage of an RESP, the Federal government will also contribute money into it as a grant or bond, such as the Canada Education Savings Grant (CESG). Your grandchild will qualify for the CESG until the end of the year when they turn 17. Each year, the government will match your contribution by 20% up to a maximum of $500 per child, to a lifetime limit of $7200. Therefore, the more you add each year, the better!
Don’t forget to make sure you have enough for yourself! You don’t want to financially support your grandkids to the point that you run out of money for your retirement. If you’re considering leaving something for them, be sure to talk to a financial advisor who can help you carefully plan out your retirement plan and estate.
Remember — the greatest gift you can give to your grandkids is your love, support, and memories that will last with them for a lifetime.