Page 8 - June 2022 News On 7

FATHER'S DAY GIFTS FOR YOUR CHILDREN
If you’re a dad, you may be in line to get some nice gifts on Father’s Day. But your greatest gift may be your ability to help
your children. A recent Edward Jones study from November 2021 found that 65 percent of Canadians are looking to pass
along at least a portion of their inheritance to their loved ones while they are still alive. If you are among the more than
two-thirds of the Canadian population who would like to witness your children's inheritance put to good use, here are
some options to consider for helping your children during your lifetime:

RESP – A Registered Education Savings Plan is an effective way to save for your child's future education expenses. As
the subscriber, you can contribute to the RESP for the benefit of one or more children who you would name as
beneficiaries of the plan. While your child is under 18, contributions are generally eligible for a matching Canada
Education Savings Grant (CESG) of 20%, up to an annual maximum of $500 and lifetime maximum of $7,200 per child.
Contribution room accrues from your child's birth and unused amounts can be carried forward to future years.
Contributions to an RESP grow tax deferred until they are withdrawn to pay post-secondary expenses for your
beneficiaries. As long as your beneficiary attends a qualifying post-secondary institution, the income and grant amounts
will be taxed in their hands in the year received. Since they are likely to earn no/low income while attending school,
they will typically pay no/little tax on withdrawals.
Outright Gift – A 2020 study found that nearly two-thirds of retirees are willing to offer financial support to their
families, even if it meant their own financial future was impacted. When considering outright gifts to your children,
however, it is important to understand what that impact may be. If you intend to gift a large sum, say for a down
payment or a wedding, consider the tax implications. While there is no "gift tax" in Canada to the giver or recipient, if
you sell non-registered investments or withdraw from an RRSP to make the gift, tax could be triggered and would be
payable by the giver. There are also tax implications if you don't sell the assets, and instead gift property that has grown
in value "in-kind", since transferring ownership of the property is considered a disposition for tax purposes. Finally,
while gifts to adult children are not subject to attribution, gifts to minor children are – which means any income (other
than capital gains) earned from the gift invested in a minor child's name will be attributed back to you.
Ongoing Gift – Instead of a lump-sum, you could gift of an annual amount that your child can use to fund their Tax Free
Savings Account. Canadians start to accumulate TFSA contribution room at 18, and can open a TFSA once they reach
the age of majority in their province of residence. A gift of up to $6,000 per year could be given to your child to help
them benefit from the tax-free growth provided by a TFSA. The accumulated funds could later be used for any purpose.
Another option is to gift them funds that they could contribute to their RRSP, assuming they have contribution room
available. This would give your child the opportunity to benefit from the tax-deferred growth offered by such accounts,
and could use the funds towards a down payment through the Home Buyers' Plan , towards education through the Life
Long Learning Plan , or towards their eventual retirement
Life Insurance with growing cash value – While life insurance policies are traditionally purchased for their benefits at
death, certain types of policies can be established with an investment component that benefits from tax deferred
growth. You can purchase permanent life insurance policies on the life of your child, and a portion of the annual
premium is used to create cash value. This cash value can grow tax-deferred inside the insurance policy. The Income
Tax Act – Canada has rollover provisions that may allow you to transfer this policy to your child tax-free. As a result, it
may be possible to transfer the policy to your child without tax implication, and generally no tax is payable by them
unless they access funds in the insurance policy. Once your child is 18 any taxes payable as a result of accessing the
funds will be payable in their hands, not yours. Another benefit of this strategy is that you have insured your child while
they are young, so if a health condition occurs in the future that would otherwise exclude them from obtaining
insurance, they still have the benefit of some insurance coverage from the policy you purchased for them.
Finally, the insurance premium can also be more
affordable since the insurance is purchased when
your children are young.
On Father’s Day, you can show your appreciation for
whatever gifts you receive from your children. But
by investing in their future, you can gain some
longer-term contentment. We can help you achieve
your wealth transfer goals. Contact your advisor to
discuss setting up your gifting strategy.

This article was written by Edward Jones for use by
your local Edward Jones Financial Advisor.
Submitted by Scott Foster