The bond between a grandchild and grandparent is very special. Often grandparents decide to leave a gift to their grandchildren in their will. This extremely generous gesture can be fraught with challenges. Here are a few things to consider prior to implementing this decision.

It is important to recognize the fact that more grandchildren may arrive following the death of grandparents. When grandparents leave gifts to their grandchildren who are alive at the time of death, resentment can sometimes arise for the grandchildren who are born at a later date. In order to prevent this occurrence, grandparents can leave their estate to their children who can divide the money accordingly to all current and future grandchildren.

In some cases grandchildren left with an inheritance from grandparents may end up wealthier then their parents. In this scenario, it is often found that the children whom inherit their grandparent’s wealth may have a tendency to be more difficult and tend to take on a cavalier nature.

Problems can arise if no age is specified in the will, specifically if the grandchildren are under the age of majority. In this case the province will take control of the money until such time as the grandchild reaches the age of majority. The age of majority varies among jurisdictions between 18 and 19 years of age. Here in Ontario the age of majority is 18.

Even if the grandchildren are at the age of majority it is sometimes advisable to establish a testamentary trust and appoint a trustee who will apply conditions on how much and when the grandchild actually receives the money. If the grandchild is a minor the trustee can be given instructions in the will with directions and conditions when minors will receive their inheritance.

A trustee is given investment powers over the money and other assets until the beneficiary reaches a certain age. Although the beneficiaries of the trust have an interest in it, the trustee is the legal owner of the property held in the trust and has the authority to control the management of the assets. The trustee’s obligations include making investment decisions and preparing and filing income tax returns on behalf of the trust.

A testamentary trust has additional tax benefits. Unlike other trusts, a testamentary trust is treated as a separate taxpayer and enjoys graduated tax rates on income. A testamentary trust has non-tax related benefits including, but not limited to being creditor proof. This means that beneficiaries, lenders or spouses cannot attack the trust.

Care must be exercised when planning gifts to grandchildren. You want to make sure that your gift is appreciated and achieves your desired objectives. Your grandchildren will appreciate it.

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.