At MacMillan Estate Planning, we recommend that individuals review their estate plan every five years or after an important event, and that they make changes if necessary. One of the most frequent important events that has our clients reviewing their estate plan is the birth of a grandchild or great grandchild. In this article, we’ll explore just a few of the things you may want to consider now that you’re a grandparent.
RESPs Have a Great ROI. RESPs aren’t just for parents. Grandparents may also contribute in the name of their grandchildren. And, if you have extra liquid capital, RESPs can be one of the best investments for your grandchildren. They will be able to benefit from the money when they are young and moving out for the first time, and RESPs offer an excellent return on investment. Since 1998, Canadian families have benefited from the matching 20% Canada Education Savings Grants (CESGs). Each year, the government will match 20% of your contribution up to an annual maximum of $500. This means if you contribute $2500 annually to your grandchild RESP, the government will add an additional $500 in contributions. An instant 20% ROI is nothing to scoff about, and the funds inside of an RESP are also able to accumulate earnings tax-free until withdrawn.
When Should Your Grandchildren Inherit? If you name your grandchild as a beneficiary, and they are still a dependent minor when you pass away, their inheritance will be automatically placed into a trust. However, when your grandchild turns the age of majority for their province, they will inherit the entire remaining amount. Many of our clients leave very generous inheritances for their grandchild, and they don’t feel comfortable knowing that their legacy may be recklessly wasted before the young adult is mature enough to handle such a large sum.
We recommend that, instead of leaving money directly to the grandchild or naming your grandchild as the beneficiary of a life insurance premium, that you instead have the money automatically placed into a trust regardless of the grandchild’s age. This trust will be very different than the one automatically created when a minor inherits. You will be able to stipulate important factors, such as at what age your grandchild may inherit (between 25 and 35 years old is a popular range) and whether certain achievements — such as graduating from university — will trigger a payout of a set amount of money.
Have You Considered Your Step-Grandchildren? Blended families are becoming more and more common, and we have met with many clients who have stepchildren and step-grandchildren to consider as they plan their estate. Some of our clients want to ensure that their step-grandchildren are treated equal to their biological or adopted grandchildren, while others would prefer to specifically exclude their step-grandchildren. Our clients understand that the step-grandchildren are an important part of their son or daughter’s life, but they don’t particularly consider the step-grandchildren a part of their own life or family. Fortunately, regardless of whether you want to include your step-grandchildren or not, it’s fairly easy to accommodate your preference in your estate plan.
In Canada, stepchildren and step-grandchildren are not considered equal to your biological or adopted bloodline. Therefore, if you write in your will that each of your grandchildren is to receive a certain percentage of your estate, and you do not specifically name each individual grandchild and step-grandchild, then step-grandchildren will be excluded automatically. If it’s important that your step-grandchildren are included and treated equally to your biological and adopted grandchildren, you will need to individually name every grandchild and step-grandchild who is to inherit.
An example:
You have two children: Alanna and Ben. Alanna is married and has two children: Chloe and Daniel. Ben has one biological child from his previous marriage: Eliane. He also has a stepchild from his second marriage: Zach.
If you write in your estate plan: I leave $300,000 to be divided evenly amongst my grandchildren. Then Chloe, Daniel, and Eliane will each receive $100,000, and Zach will receive nothing. If Alanna has a third child, Fern, and the estate plan is not updated, Fern — as a biological grandchild — will be automatically included. Chloe, Daniel, Eliane, and Fern would each receive $75,000 in this case.
Finally, if you write in your estate plan: I leave $300,000 to be divided evenly amongst my grandchildren: Chloe, Daniel, Eliane, and Zach. Then all four children will receive $75,000. However, if Alanna has a third child and the estate plan is not updated, Fern will not receive an inheritance
Reviewing and updating your estate plan regularly, will ensure your youngest grandchildren (or step-grandchildren) are not forgotten.
There are few things in life as exciting as learning you’re about to become a grandparent or great-grandparent. We know you’ll be busy picking out onesies and sharing your wisdom and experience, but don’t neglect to review your personalized estate plan as well. Our advisors are here to help you with any changes and updates you need, and if you haven’t started yet, we invite you to call us for a free consultation today!
