Listen up my beautiful Grandmas (& Grandpas)!
Okay, so let’s talk about your smart, amazing, perfect grandchildren. You’ve come to love them, so much, in fact, that you may like them even more than your own children.
So naturally, you want to bless them with money!
Before you do, however, you really need to read this, and think through some of these important questions!
Here are 3 of the most common types of accounts you can set up for your grandchildren: RESP, In Trust and Life Insurance/Critical Illness Policies.
All 3 have different purposes, uses, and tax consequences. It’s important that you know the answers to these questions when setting up these accounts.
So, I’ve put together a list of all the questions you need to answer or get answered when setting up an account for your precious peanut/cutie-pie grandchild
- What is the intended use of these funds? Education, New House. It pays to be specific with your grandchildren.
- Who owns the policy/account upon your death, in other words, who becomes the trustee for minor children on this account?
- What are the yearly tax implications on this investment/account/policy to you?
- What are the tax implications of your death on this investment/policy?
- What are the tax implications of this account/investment/policy to your grandchild? What gets taxed in their hands?
- Do these accounts pass through your estate and go through probate or do they bypass probate?
- Do your children/parent of the grandchild have access to these accounts?
- If you buy or are considering setting up an RESP, are the parents or other grandparents contributing to these accounts already? You may not want to set up an RESP in that case, or take a good look at contribution limits.
Then all the regular investment questions apply, such as:
- Is this investment properly diversified?
- How risky is this investment? Risk tolerance?
- Time Horizon of this investment?
- Expected Return?
I’m going to tell you that there are some amazing insurance policies out there that grandparents can buy for their grandchildren for as little as $25 a month. There are some great ways to structure ‘In Trust’ accounts so that all the tax flows through to the child and not the account owner. These are all things you really need an independent financial planner for! (This is one place you do NOT want advice from the banks – you need insurance and tax advice around these issues!) Sure, you can go set up a “bank account” for your grandkids, just know that if you don’t set these up properly – this money may not be getting into your grandchild’s hand.
Good intentions mean NOTHING when it comes to taxes and the law.
Let’s get real here people – no one comes from a “NORMAL” family. (Puh-leeease, even in the first family, Cain killed Abel… so yours is hopefully more functional than that!) There are SO MANY RELATIONSHIPS to consider! Second marriages, step-kids, step-grandkids, you name it. And if you have a legacy to pass down (which you do by the way!) you need to figure out who and how these loved ones are going to get your money, otherwise, without planning, I can bet the people you want to have your money won’t get it. (Not if you have married hot little Sophia in Italy on your death bed and she has 5 kids from Claude the hot Russian, and meanwhile your children and grandchildren could get nothing. THIS IS A REAL THING PEOPLE! Pay close attention!)
Also, tell your grandchildren you are saving for them. Let them know. They will model behaviour. If they see you do it, then they will most likely follow. This is important because maybe their parents aren’t saving for their children or they don’t have the money right now to do so, so showing them online or taking them to the physical bank/financial advisor that you are saving money for them, and that it’s important to save. You could be the only one in their life teaching them these financial principles and modeling that taking care of your money is important. You don’t have to show them how much, just show them that you are taking the action.
Okay, my beautiful grandmas – you getting my message!?! I know most of you grandmas are still young (like 50’s, 60’s, 70’s) and will still be around for many years to come, so this is an important role you play in your grandchild’s life.
Seriously, I love all my grandparents. They all hold a special place in my heart. They all taught me something amazing, be it about love, cooking, money, business, working hard and above all they taught me all about LEGACY. There’s something so special & magical about a grandparent/grandchild relationship!
So, I want to acknowledge the special role all the grandparents play in our lives and our children’s lives. You are important and we need you and we love you! xoxoxo