Putting Some Aside For Your Grandchild(ren).
by Brett Millard, CFP
Thom & Associates Financial Planners Inc.
I’m often approached by new parents with a recurring question:
“Our child’s grandparents would like to start putting some money away on their behalf. What is the best way for them to do this?”
There are several investment vehicles this money can go into and each one can have an enormously positive impact on the child’s financial future. When started right from birth, these various investments have many years to grow and can often substantially or even completely cover future expenses that will arise.
The R.E.S.P. Gift
The first expense which we often recommend setting up an investment for, is the child’s post-secondary education. Registered Education Savings Plans grow surprisingly quickly due to the benefits of their tax advantaged status and the government grants that add a 20% bonus to your deposits. If you were to put as little as $25 per month into an RESP when your grandchild is born, they would have $13,000 set aside for their education by the time they reach 17 years of age. Depending on the education path that is chosen, a $100 per month contribution could fully fund a grandchild’s entire university education!
The Universal Life Gift
A second gift grandparents can provide is the creation and funding of a Universal Life policy for a child. This type of policy can be set up as early as 30 days after the child is born and has a couple of key benefits. It will provide the grandchild with very inexpensive insurance that can be transferred to their own name as an adult, regardless of future health condition and insurability. Additionally, with even a very small monthly contribution, the policy will grow to a very large value. A $25 per month investment into a $35, 000 face value UL policy would be fully paid up after 20 years. With no further investments in the child’s lifetime, the policy would have a face value of at least $160,000 at retirement as well as a $90,000 cash value at that time!
The Tax Free Savings Account Gift
The third option for a grandchild’s gift has been recently improved with the Canadian government’s creation of the Tax Free Savings Accounts. A straight cash savings accountcould be used in the child’s early adult stage of life to pay off remaining school costs, go on to graduate school or even put a down payment on their first home. Investing $25 per month into a TFSA would provide approximately $17,000 in this type of account at age 25, all of which can be accessed tax free!
It all adds up!
With the above three investment vehicles, these gifts can substantially improve a child’s financial future and give them an enormous head start in life. If each of a newborn child’s four grandparents were to contribute $25 / month into each of these three types of accounts, the child’s education would be completely paid for, they would have their retirement well funded and would have $68,000 set aside to purchase their first home!!
If it’s within the budget, wouldn’t we all like to have this kind of a head start in life?
This report was specifically written and submitted by Brett Millard, CFP of Thom & Associates Financial Planners Inc., Investia Financial Services (Kelowna, BC). It is presented as a general source of information only, and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide legal advice. Clients should discuss their situation with a certified consultant and seek advice based on their specific circumstances. Comments or questions – Brett Millard can be reached at (250) 863-6505 or by email brett@thomandassociates.com
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on Tuesday, June 8th, 2010 at 12:04 pm and is filed under Estate Planning, Family Matters.
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