Financially Speaking

Giving your kids or grand-kids the gift of cash at Christmas is a good thing, isn’t it? Well, yes and no. Yes, financial gifts are always appreciated. But no, because cash is the gift that doesn’t keep on giving – once it’s gone…it’s gone. Here are some more creative ways to give money as a gift – ways that will keep in giving.

• Buy a stock, bond or units of a mutual fund through an account in the recipient’s name. The recipient will not have the legal capacity to cash the account in until they reach the age of majority. In most cases, so long as the recipient remains a minor, the parents’ authorization will be required to establish the account and to accept further contributions.
• Contribute to investments that are held within a Registered Education Savings Plan (RESP). However, it’s generally not recommended that grandparents establish a separate RESP for their grandchildren – for example, if the child decides not to pursue a post-secondary education and the plan income is withdrawn as an accumulated income payment (AIP), grandparents over age 71 will not be able to contribute the AIP to their RRSP. Instead, give the money to the parents so they can contribute to the child’s already in place investments held in the RESP.
• Create a formal trust. If the amount of the gift is significant, a formal trust can ensure that adequate controls are in place and that the funds will be used in the intended manner.

Keep in mind that when giving financial gifts to minors, the grandparents will not have the authority to manage the child’s financial affairs, and parents typically will not either. Once the gift is purchased, the money will have to stay within the account until the child reaches the age of majority in their province of residence. If the parents want the account cashed out in advance, they may have to obtain a court order of guardianship of the property of the child, or go through some other court process, depending on their province of residence, and the amount they would like cashed in.

Consider also that cashing in equities to raise funds for the gift may trigger unrealized capital gains or losses and there can be tax implications. Also, if the cash gift is invested in income-producing investments, the income will need to be reported by the contributing parents or grandparents on their tax returns until the child turns 18.

A financial gift to your kids or grandkids can be the gift that keeps on giving – when it’s properly structured. Your professional advisor can ensure that happens in the best possible way.