Sending Your Grandchildren to University

What Are Your Options?

September 7, 2017

Most grandparents love nothing more than to spoil their grandchildren, and a growing number are choosing to give one of the best gifts they can: a post-secondary education.

Whether grandparents are financially able to cover the full cost, or simply wish to contribute what they can, there are many ways they can set money aside to help their grandchildren attend university or college.

One of the easiest and most popular is a Registered Education Savings Plan (RESP).

Before choosing this option, grandparents should always discuss their desire to help with their children, the parents.
There are many benefits to having the whole family work together to contribute to a single RESP, including maximizing annual contributions to take full advantage of the Canada Education Savings Grant (20 cents on every dollar you contribute to an RESP, up to a maximum of $500 per year).

You also eliminate the hassle of having to constantly monitor contributions to multiple RESPs in order to ensure annual limits are not exceeded. Furthermore, if grandparents set up a separate RESP, there can be significant tax consequences if the child does not go to university or college. There are very limited options for transferring the funds elsewhere, and most of them are heavily taxed.

While RESPs are the most popular option, and likely to be the most suitable for your family, there are other option that grandparents may choose for a variety of reasons.

One is an informal trust that allows adults to manage funds on behalf of a child until they reach the age of majority. Known as in-trust accounts, these can be set up at most financial institutions and have no contribution limits. However, they also provide no tax benefits and the child can use the money for anything they want once they get control.

Most importantly, in-trust accounts are not eligible for the Canada Education Savings Grant. That grant of up to $500 per year adds up quickly as a child grows up, and could represent a loss of thousands of dollars if not saved in an RESP.

It is always recommended to consult a tax advisor before making any decisions that can impact your tax saving strategy. If you are interested in setting some money aside to help your grandchildren pay for university or college, contact us to learn more about your options.