My finances 10 min

5 tools to help ensure your children’s financial well-being

Being a parent is the challenge of a lifetime. Learn about tools that can help ensure their future.

By Dominique J. Favreau

Personal finance blogger

Becoming a parent comes with many moments of happiness as well as a tonne of responsibility. On top of your parental role and day-to-day obligations, you need to ensure your children’s financial security for the long term. Fortunately, there are plenty of financial tools to help you build the best possible future for your children.

Nothing beats an RESP

A Registered Education Savings Plan (RESP) is the perfect tool for putting away money for your children’s post-secondary education. RESP contributions let you benefit from a government grant of at least 30 % and as much as 45 %. What’s more, low income families get an additional $ 500 just for opening an RESP, before they even put in a penny! Your contributions and the grants grow tax free, just like in an RRSP. When you retire, it will be your children who will be required to pay tax on the contributions, grants, interest, dividends and capital gains.

You can contribute up to $ 2500 per year for each child up to $ 50,000 per child, and you can also catch up for past years when you made no contribution. It’s never too late to start!

If you have several children, you can share the gains from the family RESP between them and help each of them with their individual needs.

The RESP can remain open until the end of the 35th year following the opening of the plan.They’ll have plenty of time to use it and the chance to change direction along the way. If ever there’s any money left over in the plan, you can transfer it to your RRSP..

Life insurance for a secure future

Life insurance is a way of leaving money to your loved ones after your passing so they won’t find themselves in a financial bind. So it’s always a smart idea for parents who want to make sure their kids will have the means to get on with their lives, even if they are not there to provide for them.

The benefits are paid out to the beneficiaries you designate. In addition, the amount of coverage awarded is not taxable and is generally paid out quickly in the days following your death. The amount paid depends on the premiums you chose to pay and can vary greatly depending on your means and the expenses you need to cover. The premiums are generally between $ 10 and $ 100 per month in accordance with your age, marital status, whether or not you are a smoker and the value of the policy, of course.

At a minimum, the protection should cover the expenses associated with your death, such as funeral expenses. Next, it should be sufficient to cover the years of income you would have brought home if you were still working. This will let your children and family maintain their lifestyle and pay their current expenses.

You can also increase your life insurance so it covers things like debts or future expenses like tuition. Life insurance can also make sure your children have the necessary cash on hand so they can hold on to assets that make up a large portion of your estate, instead of having to sell them for lack of means, assets like a family cottage, for example.

Note that certain loans are already protected by life insurance. So you can exclude them from the calculation of total coverage required.

Disability insurance because life goes on

During your lifetime, you could be stricken with a disease or injury that renders you incapable of working or carrying out your normal activities. Disability insurance can help compensate for your loss of income and cover your family’s living expenses while you recover.

Disability insurance varies greatly and you need to make sure that the amount and the salary coverage period meet your needs. By way of example, individual disability insurance can cost between $ 30 and $ 60 per month.

Even with this kind of coverage, it’s a good idea to set aside some funds in case of emergency, as there is always a waiting period between the time when you can no longer work and when you start receiving payments. If you cannot obtain coverage through your employer or professional association, you can always get an individual plan. However, when a portion of the premiums are paid by a third party, you normally have to pay tax on the benefits.

Depending on your needs and your means, you can opt for short-term or long-term coverage. Short-term insurance is spread out over a few weeks and you are paid a percentage, generally less than 70 %, of your normal income. When it matures, long-term insurance kicks in. Its coverage period and the benefits paid are specific to each contract, for example, 2 years at 50 % of your salary.

A will ensures your family’s future as you intended

When you become a parent, solid estate planning is critical to making sure your children benefit in full from what you’ve built for them. In Quebec, no one is required to make a will. However, if you do not have one, it will be the law that determines who will be the recipient of your assets, which may not coincide at all with your values and your intentions. By making a will, you will designate who will become your heirs, who will receive your assets and who will be designated as the tutor for your children. It will be a huge help to your family’s decision making after you’re gone.

A will is particularly important for common law couples, as the partners inherit nothing in the absence of a will, even after decades of living together. That’s why it’s so important to make one! A basic will drafted by a notary costs about $ 400 for an individual, or more depending on the situation. You can also draw up your own will, which would make it a holographic will, in which case it costs you nothing. However, upon your death, this kind of testament will have to undergo verification, a process that can cost $ 1000 or more.

Next, it’s advisable to revise your will every 5 years or any time there are significant changes to your situation, such as separation/divorce, illness, or the purchase/sale of a major asset such as a house.

Retirement savings so you can fully enjoy life with your grown children

Contributing to any RRSP ensures you will have sufficient funds set aside to provide for your needs when you stop working, without becoming a financial burden on your children.

The savings you accumulate in an RRSP combine with any benefits you are entitled to from your employer or the government, like the RRQ for example, to meet your financial needs. In addition, your RRSP contributions help lower your income and let you put off paying tax until later. It also helps your contributions and returns grow tax free until you retire.

y consulting a financial planner, you can determine the amounts you will eventually need in order to maintain your lifestyle in retirement. Depending on your situation, you might need between 60 % and 80 % of your gross employment income when you retire.

The moment you start earning income, you can start making contributions to your RRSP and building capital for your retirement. The earlier you start, the better off you’ll be!

Becoming a parent is a role that lasts a lifetime. We all want to be sure our children have what they need both today and tomorrow. By taking advantage of the financial tools available to you, you can start by taking simple, easy steps right now which will benefit your family and your children for decades to come!

Was this article useful ?