Ways to give to grandchildren
Giving a financial gift to a grandchild can be tremendously satisfying, knowing you’re helping to make a difference in a loved one’s life. The first step is choosing when to make a gift.
You can make financial gifts to grandchildren while you’re living or upon your passing. If you give now, you’re able to experience how you’re helping out. Also, depending on the grandchild’s age, they may be receiving the gift when it makes the most difference—such as when buying a home. When funds are given upon your passing, you ensure that you first provide for your own lifetime retirement income before making financial gifts.
Giving now
You might give a large gift during your lifetime, or give smaller gifts now and also leave your grandchild an inheritance.
Education savings. Many grandparents want to contribute to a grandchild’s education costs. You can open a Registered Education Savings Plan (RESP) for your grandchild or give cash to the grandchild’s parents that they contribute to their child’s RESP. Another option is to dedicate your Tax-Free Savings Account (TFSA) to education savings. Yet another choice is to open an in-trust account1 with your grandchild as the beneficiary. It can accumulate funds that will belong to your grandchild at the age of majority.
A down payment. You could also dedicate your TFSA or use an in-trust account1 as a vehicle that will help your grandchild make a down payment on their first home. Other options are gifting cash for the grandchild to use for the down payment or contribute to their First Home Savings Account (FHSA).
Other uses. When a grandchild is young, you might pay for their summer camp or orthodontic costs. Once the grandchild is an adult, you could gift cash that a grandchild uses to contribute to their TFSA or Registered Retirement Savings Plan (RRSP), or for any other purpose.
Leaving an inheritance
You may want to leave an inheritance by naming a grandchild as a beneficiary in your will or as the beneficiary of a life insurance policy or registered plan, such as a TFSA or Registered Retirement Income Fund (RRIF).
When the grandchild is of legal age. If the grandchild has reached the age of majoritywhen they receive the funds, this method is straightforward. In the case of a life insurance policy or registered plan, a grandchild has the benefit of receiving the proceeds directly—without the delays of probate and estate administration.
When the grandchild is a minor. A minor cannot receive the proceeds of a life insurance policy or registered plan; the funds would be managed by a provincial authority until the individual reaches legal age. To avoid this situation, a common practice is to create a trust in your will to hold these assets. You name a trustee to manage the assets, and you determine when the grandchild receives the funds and whether the amount is transferred in a lump sum or distributed in a series of payments over time. Depending on the province, you may be able to give a smaller inheritance to a minor grandchild that their parent can manage until the child reaches legal age—which means no trust is required. For example, a parent can manage a minor child’s inheritance of less than $10,000 in British Columbia and Nova Scotia, less than $25,000 in Alberta and less than $35,000 in Ontario.
Rules in Quebec. In Quebec, you can name a grandchild as the beneficiary of a life insurance policy, but you can only name a beneficiary of a registered plan if the investments are in segregated funds. Otherwise, a registered plan’s proceeds go to the estate, and you can set out in the will how those funds are to be distributed. This process is straightforward if the grandchild is of legal age. If the proceeds of a life insurance policy or registered plan are left to a grandchild who is a minor, those proceeds would be managed by the minor’s parents until the individual reaches age 18 and can receive the funds. Instead, if you want control over how the proceeds are invested and when they’ll be distributed, you can establish a trust and provide directions in your will.
When giving a financial gift to a grandchild, especially one who is a minor, it’s advisable to talk to us and most often also a lawyer and tax specialist.
1 An in-trust account is not applicable in Quebec.
