There’s no “right” way to give to your grandchildren. It’s your money, and they’re the apples of your eye.
My advice, however, is twofold: First, ensure you’re okay with how the money will get used before you give it, and second, don’t compromise your retirement.
Will your money have life-changing impacts for your grandkids?
An annual contribution to a registered education savings plan could make the difference between a grandchild going to post-secondary school or not. An added perk is that, under the Canada Education Savings Grant, the government matches 20 per cent on the first $2,500 contributed annually to an RESP, to a maximum of $500 per beneficiary per year.
Your down payment contribution(s), either in a large lump sum or by funding their first-home savings account over several years, could get them into the housing market much sooner. The FHSA is a newer tool for first-time buyers with excellent tax advantages and can be used in combination with the RRSP Home Buyers’ Plan.
Your gift might drastically improve a grandchild’s understanding of budgeting and investing. And it’s the perfect moment to gently teach three fundamental money lessons they’ll have for life:
- An annual contribution to a registered education savings plan could make the difference between a grandchild going to post-secondary school or not. An added perk is that, under the Canada Education Savings Grant, the government matches 20 per cent on the first $2,500 contributed annually to an RESP, to a maximum of $500 per beneficiary per year.
- Your down payment contribution(s), either in a large lump sum or by funding their first-home savings account over several years, could get them into the housing market much sooner. The FHSA is a newer tool for first-time buyers with excellent tax advantages and can be used in combination with the RRSP Home Buyers’ Plan.
- Your gift might drastically improve a grandchild’s understanding of budgeting and investing. And it’s the perfect moment to gently teach three fundamental money lessons they’ll have for life
Many retirees are giving money-coaching or financial-planning services to their families to assist them in making solid financial plans, and frankly, to neutralize what can be a very emotional conversation.
Other times the money you’re thinking of giving is for pure joy – sneakers, for example, or taking a trip. And joy alone might be worth it for you.
Plenty of retirees blend game-changer monetary gifts with something that’s just for fun; for example, a contribution toward a down payment plus tickets to the movies. No matter what your friends are doing, just make sure you are okay with how your funds will be used.
Can you even afford to give money to begin with?
Similar to retiring too soon, giving too much and too soon could jeopardize your financial security. Your retirement savings and income need to be sufficient to cover current and future expenses, especially if you’re making a multi-year gift commitment. Do you have a safety net for unexpected expenses like out-of-pocket healthcare or home repairs? A financial planner can work this out with you and help you determine if you’re in a good position to give any money at all. They’ll also walk you through tax considerations so that there are no surprises.
Unlike taxable gifts, which include real estate that’s increased in value – including farms, investments that generate revenue, RRSPs and non-registered investments – cash has no gift tax in Canada. It’s why many retirees choose to “gift” money in the present, rather than leaving it in a will. Not only could it potentially shrink the tax liability that an estate might face; it’s also wonderful to see that money put to great use by younger family members who could use a helping hand.
If it turns out that your capacity to give is low (or non-existent), or simply requires more time for proper financial planning, helping your kids and grandkids understand that ASAP can prevent awkwardness down the road.
