This is a general and "conceptual" question and I believe this may apply to many of the "grandparents" who are subscribers of 5i.
We would like to give some money to help our grand kids. We contribute for RESPs.
Reading the literature, it seems one can set up an "in kind Trust" that can grow seamlessly till they reach 18 years old and it can be rolled over to them and as their income is still low, the taxes are low.
(I am paraphrasing the articles here.)
However, recently I was told that taking a Permanent Insurance for kids (Universal or Participating Whole Life?) is another option one may want to consider. As the grandchildren are still young , the premiums are low ..and it gives them not only life insurance(a dreadful thought) but gives them the ability to cash in their policy for an attractive lump sum amount that can be used for their education (post secondary) or whatever they wish to do. I have never heard or read about this option before and wonder if you have any opinions. If you can forward some articles comparing these two strategies, In trust account VS Permanent Life policy, I would appreciate it.
BTW, I have reviewed the articles by Colin Ritchie in Canadian Money Saver. But this specific comparison isn't there. Colin's articles are more for adults who may be interested in Estate planning or augmenting retirement income etc.,
Thank you.
We are not, by far, insurance experts, so bear with us here. An in-trust account is fairly easy to set up. It is for minors under 18. The money in the account legally becomes the child's money at their 18th birthday. We do not believe there are any restrictions to what can be owned. There are tax attribution rules. Attribution rules, as they apply to minor children, only apply to interest and dividend income and do not apply to capital gains and losses. Once the minor turns 18, these attribution rules no longer apply. Permanent Insurance for kids, from Canada Life documents, is described thusly: Permanent life insurance – It includes features that can help grow money inside your policy over time (called cash value). This money can be accessed during your child’s lifetime. When your child reaches the age of 25, the policy can be transferred to them tax-free. Later in life, your child could have the option to access the policy’s cash value to contribute to things like supplementing their retirement income or establishing a financial legacy of their own. When you purchase permanent life insurance for your child early in life, they’ll always be insured, regardless of any future health problems. Permanent life insurance costs more than term life insurance due to the cash value component. Lower premiums and the early establishment of coverage (i.e. if a child's situation makes them uninsurable in the future) are advantages. The tax free component as well. But it is hard to make a comparison as an-trust account could do exceptionally well over 20 years, or not. An in-trust account with fast-growing stocks and no dividends (no tax) held for 20 years is likely to far exceed the value of insurance, but of course its performance is not guaranteed. Many investors hate insurance, but some will swear by it. With our knowledge here limited, we will see if we can get one of our CMS authors to address the topic.