This past weekend, I asked my kids what they would like for Christmas. The list included things like an iPad, hockey stick, scooter, clothes and video games. There was one item that the kids, together, decided they would ask for. A group gift, if you will. I'm talking about the Henry River Mill Village. A village. No kidding.
As it turns out, this little village located in North Carolina, consisting of 22 abandoned buildings on 72 acres of land, is for sale for $1.4-million (U.S.). The village lost its textile economic base in 1987, was abandoned, and was the filming location for many scenes of the movie The Hunger Games.
I wasn't planning on spending that much on the kids for Christmas this year. As you contemplate the gifts you might be buying your children or grandchildren this holiday season, consider financial gifts that could reap big rewards for them in the future. Consider these five ideas.
1. Set up a registered education savings plan.
I'm not sure what a gift-wrapped RESP placed under the tree would actually look like, but an education is about the most valuable thing you can give to a child or grandchild. If you socked away $2,500 annually per child, for 18 years, and earned 6 per cent on that money, you will have accumulated $77,264 by the time the student in your life is ready for postsecondary school. You can add an additional $7,200 in Canada Education Savings Grants from the government, plus growth on those grants of $7,114 over 18 years at an assumed 6 per cent, so the RESP value after 18 years will be about $91,578. Believe it or not, that may still not be enough to pay for four years of postsecondary education if your child lives away from home, but it will go a long way to covering those costs.
2. Transfer securities to an adult child.
Why not consider giving certain securities in your portfolio to your kids. You'll be deemed to have sold the securities at market value, so there could be tax to pay if they've appreciated in value. On the flip side, if they've declined in value, you can claim the capital loss, and if you still like the prospects of the investment your kids can hold onto the securities and benefit from their future growth.
3. Set up an in-trust account for minors.
You can invest in the name of your minor children or grandchildren by setting up an in-trust account for them. Capital gains realized in the account can be taxed in the hands of the children (so invest for growth, not for income, since income will be attributed back to you and taxed in your hands). Once the children reach age 18, they will be legally entitled to do as they wish with the money.
4. Buy insurance on the life of your child.
I recently had projections done and learned that I can invest $250 monthly in an insurance policy on the life of one of my kids. In my case, this amounted to a $500,000 policy with a growing pool of investments that would be worth an estimated $47,000 in 20 years, and no more payments would be required on the policy if I so choose. Once my child is over 18, I can transfer the policy to him with no tax implications. I may make that transfer when he's a little older. He'll then own a $500,000 policy on his own life with investments that he can access to help with a down payment on a home, use for some other purpose, or he can simply allow the investments to continue to grow if he chooses to contribute more to the policy on his own.
5. Establish a family foundation.
There is perhaps no better way to build a common set of values, and teach your kids about good governance, business principles and investment strategy than by creating a foundation for the family to give charitably. The simplest way to do this is to establish a donor-advised fund through a public foundation, such as a community foundation or Scotiabank's Aqueduct Foundation, for example. The public foundation will look after all paperwork, including tax filings, and all you have to do is decide where to distribute your charitable dollars. Give each family member the ability to donate to charities of their own choosing, and perhaps choose one or two charities together for the balance of the money donated. Private foundations are another option for larger amounts set aside for charity – but that's a topic for another day.
Tim Cestnick is president of WaterStreet Family Offices, and author of several tax and personal finance books.
Tim Cestnick