How families can plan their finances around the future


Becoming a parent has a way of forever changing a person’s perspective, priorities and planning. Going from thinking for a “me” to a “we” has a lot of emotional and psychological implications, and this mental shift often inspires adjustments to financial plans as well.

That’s because the new responsibility brings with it new financial opportunities, new reasons to protect your wealth, and more reason to ensure that those closest to you are taken care of in the event of an emergency.

For example, a comfortable couple in Montreal in their mid-40s with children or teenagers may already have RRSP and TFSA savings accounts to support themselves as they reach retirement age. But now they can consider other options that are open to Canadians with children under the age of 18 as well.

“The big advantage of the Registered Education Savings Plan (RESP) is the government grants that come with it,” said Angela Iermieri, financial planner for Desjardins.

Iermieri explained that the federal government provides grants to all Canadians equal to 20 per cent of their RESP contribution. For example, if they contribute the annual maximum of $2,500 per child, they will receive an additional $500 in basic federal grants per account. Those with a lower income are eligible to receive even larger education grants.

Quebecers who contribute to an RESP enjoy an additional incentive.

Planning your finances around children means thinking ahead.

“Here in Quebec, the provincial government will give you another 10 per cent, minimum,” said Iermieri, adding that the provincial grants are also based on income.

Furthermore, while those funds, capped at $50,000 per child, sit in an RESP account, they can also be invested, providing even greater opportunity for Canadians to grow their savings.

“We put the money in an RESP, we get another 30 per cent minimum from the government, and now we can invest this money and make all of it grow, tax free,” said Iermieri.

RESPs do come with certain timing restrictions. For example, parents can start investing in an RESP for each of their children before they reach the age of 15, and grants are only provided until they reach the age of 17.

“When it’s time to withdraw, the capital that’s invested is not taxable,” Iermieri said. “The only thing that is taxable are the grants and the income generated (through investment), but it is taxed at the child’s tax rate, so they probably won’t pay taxes on the money they’re withdrawing.”

Though having children can provide some new financial opportunities, it’s also a responsibility that requires parents to re-evaluate financial protections as safety nets as well. For example, Iermieri said new parents often inquire about life insurance shortly after having children, and should ensure that their family is taken care of in the event of a tragedy. The one protection that they tend to neglect, however, is a will.

“Most people look at their will as something they need to worry about when they get old; they don’t see the implications of having children that are minors,” Iermieri said. “If the parents were to pass away and the children were to inherit more than $25,000 and you haven’t appointed a legal guardian, it can get very complicated.”

She added that a will is even more important for those who have children with special needs, or those who are in common law relationships. Estate planning also gets more complex as one accumulates wealth and assets.

“When you pass away, it’s as if you have liquidated all of your assets, and that’s when the tax bill comes in,” Iermieri said. “There are ways to prepare for this as you start acquiring more assets.”

Iermieri explained that parents can take measures to minimize the estate tax bill, thus maximizing the estate.

“That is something a financial adviser can help with,” she said. “We can help with an estate inventory to help you calculate the net worth of your estate, see what the tax implications are, and advise the best way to transfer this sum.”

Every situation is different, and each family will require a tailored approach, which will vary depending on the ages of the children and parents, their income level, financial priorities, financial needs, savings and more.

“That’s why you need to sit down with your financial adviser and say: What’s the best strategy for me and my family?” she said.

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This story was created by Content Works, Postmedia’s commercial content division, on behalf of Desjardins Wealth Management.