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Investing for Your Grandchildren
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| As grandparents, you are probably very familiar with giving money to
your grandchildren. Whether your gifts are in the form of toys, clothes,
trips or dinners out, or a few dollars slipped here or there, you are
already a generous grandparent. Now, you might have started thinking about
what sort of a long term impact you can make. Sure, you will still spoil
your grandchildren on a regular basis, but having an investment plan to
save for your grandchild’s education, first home, travel, or other
important purchases is an important way to give your grandchildren a head
start. There are a few ways you might consider saving for your
grandchildren’s future – let’s take a look at some of the basics. |
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The Ins and Outs of Inheritance
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| If leaving an inheritance to your grandchildren is part of your
financial plan, doing your research and talking to an expert is crucial.
Collecting an inheritance is often not simple, especially in respect to
taxes. |
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| Contrary to what some people will have you believe, there is no ‘gift
tax’ in Canada. This is good news for your children and grandchildren, who
won’t have to include any monetary gifts or inheritance you leave them in
their income. But be careful – any capital property (which includes
investments and any real estate other than a primary residence) which is
given as a gift will be deemed to have been ‘sold’ by the person who gave
the gift, who will have to pay tax on any capital gain. Something else to
watch out for is your Retirement Income Fund – all withdrawals from your
RIF are taxable. You’ll want to talk to your financial planner about these
and other issues regarding taxes and your will. Until then, you might want
to think about other ways to help secure your grandchildren’s financial
future. |
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RESP’s
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| Registered Education Savings Plans allow family and friends to
contribute to a plan to save for a child’s education. RESP’s have become
popular ways to save for education since the introduction of the Canada
Education Saving Grant (CESG) in 1998. Through the Basic CESG, the federal
government will contribute 20% of your annual contribution to the plan –
up to $500 per child per year. This Basic CESG is one incentive to
contribute – the Additional CESG, Canadian Learning Bond, and various
provincial savings plans are others. With the added bonus of these Grants
and other programs, the advantages of investing in an RESP for your
grandchild’s future are clear. As well the tax benefits of RESP’s are
numerous, making RESP contributions one of the most popular ways you can
contribute to your grandchild’s educational savings. |
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Savings Bonds
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| Canada Savings Bonds are another traditional choice for grandparents.
Offered for purchase between April and October every year, Bonds offer a
minimum guaranteed interest rate and are available in a variety of
denominations. They have a ten-year term to maturity, and can be purchased
with regular or compounding interest. Savings bonds are a nice option as
they have a relatively low minimum purchase amount of $100. Bonds can make
a nice Christmas or Birthday gift as they have the added benefit over cash
of being a beginner lesson in savings and investment for your
grandchildren. While historically bonds have performed well (offering
rates as high as 18% per annum in the 80’s), more recently their
performance has declined. |
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High Interest Saving Account
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| This option is becoming more popular for grandparents as attractive,
flexible, and online accounts begin to be offered. If you have online
banking, being able to instantly add funds to your grandchild’s account
right from home is certainly an advantage of a savings account. The funds
can be earmarked for education, travel, a new home, or something else
personalized to your grandchild’s future goals. Another nice thing about
saving for your grandchild through a bank account is that if you are a
seasoned investor yourself, you can then discuss with your grandchild how
they might want to start investing. Passing on money management and
investment strategies to your grandchildren as they grow is a lasting gift
more valuable than the dollar amount in their account. |
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