Q&A With Gordon Pape: What Is the Best Way to Save for the Grandchildren?

Q – My husband and I have four young grandchildren. Each birthday we deposit $1,000 into an InvestorLine account that we have set up for each one. At this point we are buying Vanguard stock. We realize that at some point, when the child receives the money, there will be capital gains.

Both sets of parents have their kids involved in RESPs. We do not want to get involved with that. Can you offer another way we can keep doing this but in something that will not get as taxed as our system now? All grandchildren are under 10 years old, so we have lots of time. — Kathie S.

A – RESPs are the most tax-effective way to save for your grandchildren’s education. Since you don’t want to use them, there are no other tax-avoidance methods that I know of. They can’t have Tax-Free Savings Accounts until they are 18 and they can’t open RRSPs if they don’t have earned income.

As things stand right now, any interest, dividends, or capital gains earned on the investments made on their behalf will be attributed back to you for tax purposes. That’s because the children are minors. If they were adults, you could give them money without attracting tax.

One suggestion is that you give the $1,000 to the parents, which would be a tax-free transaction. Then they could contribute it to the RESPs that already exist, increasing the amount of education savings. — G.P.

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