Giving your kids or grandkids 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…’s gone. Here are some more creative ways to give money as a gift – ways that will keep on giving.

  • Buy a stock, bond or mutual fund for them. I remember about 15 years ago I had a client tell me that instead of buying toys for their grandchildren, they had been buying them shares in a particular toy company. Fast forward to today and that money has easily tripled or more! I realize kids may find receiving a stock slightly less entertaining than the hottest new toy, but most kids today have far too much “stuff” anyway. It’s also a great way to start teaching kids about saving & investing. Consider selecting a stock that produces toys, entertainment, games or foods that they like. As they grow older they will learn and understand how capital markets work. There may be different options as to how you set the account up, with various legal & tax consequences depending on the option you choose. You should discuss these with your financial advisor to find the most suitable option for you.
  • Contribute to your child’s or grandchild’s Registered Education Savings Plan (RESP). Again, this may not be very exciting from the child’s perspective, but it will go a lot further to building their future than the latest electronics will. 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their grandchildren – for example, if the child decides not to pursue a post-secondary education and the plan income is withdrawn as an accumulated income payment (AIP), grandparents over age 71 will not be able to contribute the AIP to their RRSP.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, there are specific legal & tax laws that come into play. Who has control of the money, and who pays the taxes, are important things to consider when establishing the account. 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.

Kids today gain levels of sophistication and tech savviness at earlier ages than ever before. But this is a complex world and, more than ever, parents have a key role in making sure their children are equipped to deal with every complexity – and developing strong money management skills should be among the most important for helping your kids achieve their life goals, lead a better life and help others.

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

Lynn MacNeil, F.PL. is a local licensed Financial Planner with Investors Group Financial Services Inc., with over 19 years experience working with retirees & pre-retirees. This column is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide legal advice. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at (514) 693-3384 or [email protected]

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