There is so much as grandparents we want to pass along to our grandchildren. There are the foundational pieces in life such as love, core values, respect, kindness, manners and these are just a few that come to mind. We all know, you can’t buy these attributes and yet for so many parents and grandparents they are an important part of their legacy.
To be honest, we would love to give our grandchildren the world but clearly we can’t and clearly we shouldn’t, even if we could. However, what we can do is try to open the world of possibilities for them by helping to fund a post-secondary education.
I often joke with our adult children, for this birthday, holiday or special event our grandchildren don’t need another toy, designer outfit or the latest technology. What they do need, is a financial contribution to their education fund. And that is exactly what we do.
I believe, education is the great equalizer. In other words, in an indirect way we are trying to give them the world, by providing them with an opportunity to grow, develop and learn.
This is truly the type of gift we believe that keeps on giving long after new toys are forgotten, styles have changed and technology has moved to a new generation.
But it isn’t cheap.
Based on data provided by Statistics Canada, the average cost of a four-year university degree starting in 2022 is $96,004 for students in residence or $48,074 for students opting to live at home.
The escalating costs led us to save early and contribute often not only for our children but our grandchildren, as well. The plan of choice for us has been Registered Education Savings Plan or RESP.
Using Registered Education Savings Plan
Here are a few of the basics:
- The government will match contributions up to $500 per year for a lifetime total of $7,200 per child, via the Canada Education Savings Grant. This is free money from the government.
- The savings will grow tax-free within the plan; however, grants and growth accumulated in the plan are taxed at the student’s rate when withdrawn. Typically, this isn’t an issue for most students who have little or no income, resulting in the money being withdrawn tax-free.
- The student decides where to spend the money. Tuition, books, meals accommodation, etc. The money can be used for a wide range of post-secondary educational options including apprenticeship programs, college, trade or a university degree.
Yet the reality for some is their desire to help their children or grandchildren fund their education trumps their financial ability. Sure, some will make small regular contributions while others may decide to take some equity out of their home by way of a reverse mortgage. I’ve also seen families pool money together with parents, grandparents, aunts, uncles and friends all joining forces to help reduce the costs. All are viable options that work and are worthy of exploration.
Gifting Money to grandchildren for education
In fact, a new form of financial legacy is the gifting of money earlier. Gifting at time of need versus via an inheritance. While this isn’t a widespread practice, it is gaining in popularity and could provide the donor an opportunity to see their legacy in action. A potential win/win if you can afford it and decide to do it.
However, a word of caution when gifting money for educational purposes versus simply gifting money.
1) Money gifted for education should be clearly stated it is for education. If it is positioned as simply a gift, then it is a gift and there should be no strings attached.
2) There are no tax consequences when you gift money to an adult child. Attribution rules, however, do kick in if the gifted money goes to children who are minors. Any income or dividends will be attributed back to you and you will be taxed accordingly – another good reason to use a RESP over a trust fund for the child’s education.
3) Reducing probate costs should not drive your gifting decisions. The probation costs are so minimal compared to the financial issues your estate could face if the distribution was challenged.
Recognize you may not be able to fund their entire education and that is okay. Small amounts can go a long way. In fact, even if you are able to fund it entirely, I’m not sure you should. I do think students should contribute something to their education, learn to budget, be proactive in sourcing out grants, bursaries and scholarships. This is all part of the educational journey and can be a powerful life lesson.
In closing, while we do contribute to our grandchildren’s RESP’s we also try to give our love, time and energy and of course there will always still be a token gift from Nana P and Papa.
~ Pattie Lovett-Reid
Chief Financial Commentator