Recently I met with a young couple that just had their first child. This recent addition to their family brought them a whole new list of priorities when they looked at their financial goals. I spent some time with them and explained the updates we’d need to make to their financial plan, including saving for post-secondary education costs.
The Foundation of Your Education Saving Strategy
As I explained to this young couple, there are several different ways you can save for a family member’s education – but a Registered Education Savings Plan (RESP) offers many important advantages. An RESP combines flexibility, tax-deferred investment growth and direct government assistance to help you reach your education savings goals.
The RESP is set up as a Family Plan, which can be set up for various family members, including children, grandchildren and even siblings (by blood or adoption).
A Family Plan offers several advantages, including the ability to name one or more beneficiaries in the same plan. In addition, the funds in the plan do not have to be shared equally among the beneficiaries, giving you more flexibility when it comes to making withdrawals.
Making Contributions to an RESP
An RESP is subject to a lifetime limit established for the beneficiaries. Although you cannot deduct the contributions made to an RESP from your taxable income, the subsequent investment earnings on RESP contributions are tax-deferred. Qualifying investments include GICs, stocks, bonds, mutual funds and professionally managed investments.
The Canada Education Savings Grant: A Potential 20% Return on Investment
Perhaps the biggest advantage to contributing to an RESP is the Canada Education Savings Grant (CESG) — a powerful incentive from the federal government. With the basic CESG, for an eligible beneficiary under the age of 18, the government will add 20% annually to the first $2,500 contributed to an RESP. That adds up to $500 per year. The maximum CESG over the life of the RESP plan is $7,200 per beneficiary. The grant proceeds are invested along with your contributions, further enhancing the benefits of tax-deferred, compound- investment growth within your plan.
Committing to Your Child’s Future
One point I emphasized with the two new parents was the importance of committing to a regular, periodic investment plan. It’s truly one of the most effective ways to reach your goals. There are three key benefits to committing to making regular payments towards an RESP:
Encourage Your Kids to Help
Although these clients had a young baby, I reminded them that as their child gets older, it’s a good idea to encourage them to save their earnings and cash gifts from relatives in a special savings account. Not only will they help accelerate their savings this way, they will also learn a valuable lesson about the power of long-term investment growth.
I have recently been asked to be named an executor in my family member’s will. I said yes, however, I am not sure what this means and what responsibility I have taken on. Can you provide me with any guidance?
Generally an executor is responsible for carrying out the deceased’s wishes as stated in the Will. This often begins with assisting with funeral arrangements and meeting the immediate financial needs of the beneficiaries. It also involves identifying, protecting and valuing the assets of the estate, paying the expenses and liabilities of the estate, filing tax returns and, finally, distributing the remainder of the estate to the beneficiaries.
It can take 12 to 18 months to complete an average estate settlement. In cases involving more complex estates, settlement can sometimes take years – all while requiring you to keep the beneficiaries informed and ensure proper documentation is completed for each step of the process.
In some cases, I would recommend hiring a third party estate professional; such as a lawyer or Trust Company; who can provide valuable support in a time of grief and help you sort out the many details of an estate in a thorough and timely manner. An estate professional can oversee important components of a will that could prove difficult for you such as valuing estate assets or distributing them to beneficiaries. Perhaps equally important, an executor will help you communicate with beneficiaries with potentially conflicting interests – it always helps to have an unbiased third party managing potentially sensitive issues.
This article is supplied by Rocco DiPasquale, an Investment and Wealth Advisor with RBC Dominion Securities Inc. (Member–Canadian Investor Protection Fund). Rocco has been working in financial services for 15 years, advising families, individuals and corporations on strategies for building and protecting their wealth. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. Rocco DiPasquale can be reached at 905 738 8877 or firstname.lastname@example.org.
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