Give them the gift of ed­u­ca­tion

The grand­kids may not go bonkers over it, but con­tribut­ing to a RESP this hol­i­day could be the per­fect present

Winnipeg Free Press - - MONEY MATTERS - JOEL SCH­LESINGER

N RESP con­tri­bu­tion is a gift that keeps on giv­ing.

(That’s one heck of a Christ­mas present!)

Of course, this gift’s lu­cra­tive na­ture may not nec­es­sar­ily win the hearts of grand­kids in the near-term.

But con­tribut­ing money to their post-se­condary ed­u­ca­tion fund is ar­guably money bet­ter spent than on, for ex­am­ple, a glit­tery slime-poop­ing uni­corn (and yes, that’s a re­ally hot gift this sea­son, which af­ter taxes costs just about $100).

What’s more is — let’s face it — cash-strapped par­ents can al­ways use a lit­tle fi­nan­cial help from the grand­par­ents. And a re­cent sur­vey by an RESP in­vest­ment fund com­pany says some fam­i­lies may need a boost more than oth­ers when it comes to sav­ing for their kids’ ed­u­ca­tion.

Most sur­veyed par­ents did state they save in an RESP (reg­is­tered ed­u­ca­tion sav­ings plan) or even a TFSA (tax-freesav­ings ac­count), ac­cord­ing to the Ip­sos study re­leased last month on be­half of Knowl­edge First Fi­nan­cial.

Yet about 20 per cent in­di­cated they have no ad­di­tional money for that goal in their house­hold bud­get. And for low­in­come fam­i­lies — of­ten sin­gle par­ents — that num­ber in­creases to 62 per cent.

Heck, even for those who are sav­ing, many prob­a­bly aren’t sav­ing enough.

“What we found is peo­ple re­ally do un­der­es­ti­mate the cost,” says Suzanne Mar­tyn-Jones with Knowl­edge First Fi­nan­cial.

“The ma­jor­ity of par­ents thought the first year would be less than $10,000, and then when we showed them the cost... 75 per cent said they were go­ing to save more.”

That num­ber par­ents saw was roughly $12,500 per year. Of course, the fig­ure is jacked up a bit. It in­cludes ex­penses for hous­ing and other ba­sic liv­ing ex­penses.

And most par­ents are sat­is­fied to help cover their chil­dren’s tu­ition and some books. So the true cost for many may be less if the kids live at home while com­plet­ing a post-se­condary pro­gram.

“Re­gard­less, the re­ac­tion we heard re­gard­ing this is­sue was ‘I bet­ter save more,’” she says.

While most fam­i­lies sur­veyed in­di­cated they’d try to save more, only 43 per cent stated they might ask

Afam­ily for help.

“In one sense that means some are open to ask­ing for help, but it’s also the low­est among the mea­sures they were will­ing to take,” Mar­tyn-Jones says.

“And that begs the ques­tion: are peo­ple com­fort­able ask­ing fam­ily to pitch in for their kids’ ed­u­ca­tion?”

Which leads us back to the orig­i­nal premise here: if you’re a grand­par­ent, why wait for them to ask for as­sis­tance? Help out now with a hol­i­day con­tri­bu­tion. That is, if you have the money to help.

Some data on wealth in Canada sug­gest many sil­ver-haired folk might. About $1 tril­lion in wealth is ex­pected to trans­fer from one gen­er­a­tion to the next in Canada by 2026, ac­cord­ing to one study from 2016. One might as­sume a good num­ber of peo­ple with this wealth have grand­kids.

What’s more is this is tax­able money that may ul­ti­mately end up the hands of the kids and then, hope­fully, the grand­kids any­way.

Not sur­pris­ingly then, trans­fer­ring some wealth ahead of time — avoid­ing pro­bate fees upon death — to con­trib­ute to the grand­kids’ ed­u­ca­tion is ac­tu­ally a fairly com­mon strat­egy, says Cory Pap­ineau, wealth ad­viser with the Win­nipeg Po­lice Credit Union.

“I love that they want to help their grand­chil­dren, and un­der­stand the im­por­tance ed­u­ca­tion has to­day and in the fu­ture.”

But he also cites a caveat. Rather than open­ing a plan for the grand­chil­dren on their own, “I en­cour­age them (grand­par­ents) to con­sider hav­ing the par­ents open and ad­min­is­ter the plan, and they can then make con­tri­bu­tions to that ac­count.”

The rea­son be­ing is if grand­par­ents set up the ac­count, they be­come the sub­scribers — man­agers of the RESP — and that’s an 18-year-plus com­mit­ment.

“They are ul­ti­mately the own­ers of the funds, must make the in­vest­ment de­ci­sions and be in charge of the with­drawals and ad­min­is­tra­tion when the grand­kids are ready to at­tend school,” Pap­ineau says. “With many par­ents hav­ing chil­dren later in life, that could mean that (grand­par­ents) could be man­ag­ing the RESP well into their 80s and be­yond.”

Well, hey, why not?

A good num­ber of se­niors are still ac­tive in their 80s. Still, there are some risks to that strat­egy. For ex­am­ple, one in six in­di­vid­u­als is likely to suf­fer from de­men­tia by age 80, which begs the ques­tion: who might man­age the plan if that mis­for­tune oc­curs?

Risks aside, cer­ti­fied fi­nan­cial plan­ner MaryAnn Kokan-Ny­hof with Des­jardins Fi­nan­cial Se­cu­rity in Win­nipeg says she has a num­ber of clients who do set up RESPs for their grand­kids.

“All of whom started when their grand­ba­bies were first be­ing born.”

Their think­ing, she adds, is young fam­i­lies don’t have free cash flow to fund an ed­u­ca­tion plan.

For that mat­ter, Kokan-Ny­hof even rec­om­mends grand­par­ents take on that role as sub­scribers to en­sure the money oth­er­wise doesn’t flow into gen­eral fi­nances of the fam­ily, and not ed­u­ca­tion.

She ar­gues there’s an­other rea­son, too.

“With the rise of di­vorces, the funds in the RESP can be­come a push-mepull-you tug of war be­tween par­ents.” That can’t hap­pen with grand­par­ents as the sub­scribers.

Do­ing so, how­ever, is not a small com­mit­ment. It re­quires a fair bit of plan­ning. Be­sides com­ing up with the money to fund the ac­count, grand­par­ents need their grand­kids’ so­cial in­sur­ance num­bers and other ba­sic per­sonal in­for­ma­tion.

They also need to plan how the ac­count will pass to the ben­e­fi­cia­ries should they, well, pass.

This is where things get tricky, Pap­ineau says.

“This sub­ject could be an en­tire ar­ti­cle in and of it­self as the com­plex­i­ties for suc­ces­sor sub­scribers and who owns the funds can cre­ate a whole ad­di­tional suite of is­sues,” he says.

Un­like RRSPs and TFSAs, the RESP is not a trust. “The funds tech­ni­cally be­long to the es­tate and un­less some­one is named in the grand­par­ents’ will as the suc­ces­sor, the ex­ecu­tor would be re­quired to wind up the plan and dis­trib­ute the funds to the ben­e­fi­cia­ries of the es­tate.”

And those ben­e­fi­cia­ries are not nec­es­sar­ily the grand­kids who are listed as ben­e­fi­cia­ries of the RESP. While po­ten­tially com­pli­cated, grand­par­ents can cre­ate the ac­count and man­age it for the long term. What’s likely needed to en­sure it’s done prop­erly to avoid es­tate prob­lems is good ad­vice from a fi­nan­cial pro­fes­sional.

That said, the sim­plest way for­ward is of­ten to work with the par­ents. Get them to set up the ac­count and give them the cash to con­trib­ute.

Re­gard­less of how this sausage gets made, con­tribut­ing to the RESP for the grand­kids — as long as you have the mon­eyed means to do it — is a choice gift this time of year.

The grand­kids may not squeal with glee, but they may have to take that much less debt once en­rolled in post­sec­ondary.

And that’s some­thing we can all cheer about.

TRI­BUNE ME­DIA

Chil­dren may not ap­pre­ci­ate a gen­er­ous con­tri­bu­tion to their ed­u­ca­tion yet, but they will say thank you when they are in less debt later in life.

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