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Grandparents want to give the gift of a secure future to their grandchildren. However, there are multiple investment options through which this can be done.

A direct cash deposit into any bank account might attract tax deductions. With cash gifts at an early age, you don’t have control over how and where your grandchildren spend the money. Government financial plans such as RESP offer support only for post-secondary education expenses in Canada. 

However, your grandchild might need financial support to open up a business, medical treatments, or make a down payment on their first house. 

Fortunately, with Child Plan™ Participating Whole Life Insurance, you can gift a financially secure future not just for your grandchild’s education but for life. You can read more about such financial gifts here.

Child Plan: a financial gift with tax advantages

So what exactly is a Child Plan™, and how does it work? To begin with, Child Plan™ is a participating Whole Life Insurance plan that combines guaranteed cash values and permanent whole life insurance. This fund grows tax-free throughout your grandchild’s entire life. 

Child Plan™ cash values can be utilized by your grandchild for any financial need during their lifetime, such as education, technical training, business funding, down payment for a house, etc. 

Features of Child Plan 

  • A Child Plan™ can be started as early as 14 days after the birth of your grandchild. Early investments enable the accumulation of substantial funds when your grandchild actually needs financial support.  
  • You can utilize both personal and corporate proceeds for funding this insurance plan. 
  • Your grandchild becomes eligible for annual tax-free dividends throughout their lifetime from the day you open the account. 
  • Grandparents above 64 years of age can even utilize non-registered RRSP (Registered Retirement Savings Plan) or RRIF (Registered Retirement Income Fund) fundings to invest in the Child Plan.
  • When you invest in bonds or stocks for your grandchildren, the wealth earned is liable to tax deductions. With permanent whole life insurance, you can transfer wealth to your future generations tax-free.
  • Directly gifting cash or opening a TFSA account gives your grandchild complete control over the funds once they become legal adults. You don’t want them spending their future financial security on expensive bags, clothes, or perfumes. As an owner of the Child Plan™, you can control the cash values until you transfer ownership tax-free to your grandchild. You can make this transfer when they turn 18 or when they actually require funding for education, business, healthcare, or real estate purchase. 
  • Another great part of Child Plan™ is a permanent, fully paid-up life insurance plan. The value of this whole life insurance grows throughout your grandchild’s life from the day you start investing. 
  • In old age, maintaining several funds and accounts might become challenging. The Child Plan™  has a solution for that. You can reassign ownership of the insurance plan any time, tax-free, to your grandchild to keep the funding in trust for your grandchild. 
  • If you choose to pre-fund the plan in full, you’re eligible to save up to 25% on the total cost of the scheme.
  • Another interesting part is that Child Plan™ is secure and isn’t affected by inflation or recessions in the Canadian economy. 
  • Life insurance funds are paid tax-free to future generations.
  • There are no stringent guidelines or penalties for transferring ownership, withdrawal, or fund utilization. You can even transfer the ownership tax-free outside your estate. Cash and insurance funds are not liable to income tax deductions, estate fees, or probate fees.

Alternative financial gifts for grandchildren

While the Child Plan™ Participating Whole Life Insurance remains by far one of the most secure and flexible methods of financial gifting, there are several alternative Government schemes to gift wealth to your grandchildren.  

You can supplement these financial schemes with your Child Plan™ insurance. 

RESP- Registered Education Savings Plan

RESP is an initiative supported by the Canadian Government. With this scheme, parents and grandparents can accumulate funds for their child’s post-secondary education. 

The RESP model involves a subscriber, promoter, and one or more beneficiaries. 

  • The subscriber (grandparent) is the principal contributor to the RESP. As a grandparent, your contributions aren’t eligible for Income Tax Benefit returns.
  • The promoter is generally the Canadian Government. The investments done by the Government are through Canada Learning Bond (CLB), Canada Education Savings Grant (CESG), or any accredited provincial education savings scheme. 
  • The income earned in the RESP fund is paid to the beneficiaries (grandchildren) as educational assistance payments (EAPs).

The RESP scheme is a strictly educational funding program. 

RRSP (Registered Retirement Savings Fund) 

Many young individuals tend to spend their earnings or savings on unnecessary luxuries without thinking or planning their retirement finances 45-50 years away. 

  • Under the Canadian income tax rules, your grandchildren can benefit from indefinite carry-forward of unused RRSP deductions. 
  • Over time, compound growth of funds can generate substantial wealth inside an RRSP.
  • Investing in your grandchild’s RRSP scheme is an amazing method to transfer wealth from one generation to another. 
  • RRSP funds can be withdrawn without income tax deductions if the money is utilized for education or the purchase of a first house. 

If you’re financially flexible, you can combine RRSP and Child Plan™  to give a lifetime of financial security to your grandchildren. 

TSFA (Tax-Free Savings Account)

TFSAs enables you to save and invest funds without being liable for any tax deductions on the growth. 

  • You can make your grandchildren joint account owners. Once they become a legal adult, they can use the funding for education, real estate down-payment, business, etc. 
  • All the dividends, capital gains, or interest earned through the scheme will always remain tax-free. 
  • You can contribute up to $5,000 per year to a TFSA. 

However, you won’t have any authority over how the funds are used once your grandchildren become adults. 

Conclusion

Financial gifts can help your grandkids fulfill their dreams and aspirations. With a tax-saving scheme, your grandchild can enjoy a tax-free return. You can have authority over the funds and transfer them to your grandchildren when you seem fit. While RESP is a special education scheme, Child Plan™ Participating Whole Life Insurance provides a flexible option for funding your grandchild’s financial future!