Rising costs for everything from housing to groceries has many parents thinking about their children’s financial future. Many of Senior Financial Advisor Raj Hundal’s members can afford to give at least a little to children and grandchildren, but she says it’s important to have a plan first.
“Understandably, many of my clients are emotionally attached. Their instinct is to give as much as they can to help pay for their child’s house or their grandchild’s education. Sometimes this emotional attachment can blind them to what they can actually afford. We need to look at their short-term cashflow needs and long-term goals, to help determine how they can best help,” says Hundal, who works at Envision Financial.
Contribute to your spouse’s RRSP or child’s RRSP/TFSA
If you’ve maxed out your own contribution room and have more savings in a non-registered account, consider topping up your loved ones’ registered accounts. Set up a spousal RRSP if your partner earns less than you, or pass it on to your children. “Just remember that you have no control over that money once it’s been gifted. Have a conversation to explain your wishes for the gift — if it’s for a down payment or education, explain that. But if your child uses it differently, that’s their choice,” Hundal says.
Pass your inheritance on to the next generation
If your own retirement planning is on track and you’ve just received an inheritance from your parents’ estate, consider gifting it to your children for their first home, or setting up RESPs for the grandchildren. “You can also open a special account to set that money aside for later. If it’s a registered account, you can name the beneficiary, which means it won’t need probate from court after you pass away.”
Co-sign considerations
Co-signing for your child’s student loan, line of credit or first home mortgage can help them significantly, but don’t ignore the risk to your personal finances. “The co-signer is fully liable to pay off the complete loan, and the loan will show on your credit report. Talk to an advisor so you understand the consequences — even for something as simple as a joint account,” Hundal says.
Communicate
Talk to your children about your financial plans — don’t leave surprises in your will that may cause stress or delays for your loved ones. “Ongoing communication with your wealth advisor is also important. The more your advisor understands about your life and goals, the better they’ll be able to help.”
Every person is different, and that means every financial plan needs to be unique. A solid financial plan that considers your future income and projected spending can help you decide if you can afford to make your desired gift without impacting your desired lifestyle.