The gift of financial well-being

A financial product is an often-overlooked gift idea likely to keep its worth long after those new clothes are outgrown and that trendy technology becomes outdated.

Calgary Sun Life advisor Vim Manuel says she helps spouses contribute to their partners’ retirement plans, and grandparents set up RESPs or buy insurance for their grandchildren.

“They’re quite concerned about the financial well-being of their kids and their grandkids. They know it’s harder to qualify for houses, they know it costs more to get an education,” she says.

Like any other investment, determining which is the best fit depends on the risk tolerance of the client. Even if the investment is a gift, those parameters are based on the preferences of the gift-giver, she says.

“It’s really important for them to be comfortable with what they want to offer to their loved ones,” she says. Other factors include when the giver wants the investment to mature, and what he hopes the recipient will do with the money.

Here are four ways to contribute to a loved-one’s financial security:

RESPs

“Generally, the grandparents open up an RESP account for the grandchild and name the grandchildren as beneficiaries,” explains Manuel. Parents should also be listed as guardians on the plan.

She recommends that grandparents open up one RESP per family, as it could help children qualify for education funding programs.

Depending on the gift-giver’s preference, the RESP money could be invested in the markets or in something more conservative, like GICs or bonds. After a fund has been established, the gift giver could transfer responsibility for the RESP to the parents.

Accumulation Annuities and GICs

These options can be used in registered or non-registered savings accounts, says Manuel, while a spouse can contribute to her partner’s RRSP or TFSA.

An accumulation annuity is an insurance investment product. The gift-giver makes an initial contribution, or she can make monthly payments as low as $25 for children. The value of the annuity grows with deposits and a guaranteed interest rate. The gift recipient is named as a beneficiary, and they get the money after a fixed term that the gift-giver can decide upon.

GICs can also be held in a trust, with the gift recipient listed as the beneficiary, she notes. Like accumulation annuities, GICs offer a gift-giver some piece of mind, she notes, since the initial investment can never be lost.

“The gains are maybe not as high as other investments, but it’s a great way of packaging money and having it grow in a safe manner,” says Manuel.

Insurance

Life insurance can seem like an unlikely gift for a child, notes Manuel, but some policies have payoffs that can be used to pay for expenses when those kids grow up.

If the child gets ill, expenses not covered by provincial health care could be taken care of. If the child doesn’t need to draw on the insurance during the term of the policy, they could be eligible to get back 75% of all the premiums paid into the policy, she explains.

“They could use it to pay off the balance of a student loan, or put a down payment onto a house,” she says.

This fall, Manuel says she met with two adult siblings who are now benefiting from insurance policies set up by their grandfather when they were young. The policies pay dividends, so the siblings will now get regular payouts. Manuel says she’s counselling them to use the money to pay off debts and start saving for retirement.

Buying a policy young also has the benefit of locking the recipient’s premiums in at a low rate, she adds.

This insurance plan has tax benefits as well, she says. “It’s another way of moving money into the child’s hands to be taxed,” she says.

Buying someone an insurance plan may take up to 90 days. The policy needs to be underwritten and either parents or beneficiaries need to answer health questions, Manuel notes. And if the giver doesn’t want the responsibility of paying regular premiums, they could initially over-fund the policy so later payments come out of that fund, she notes.