Stuart Kirk’s financial column

Building a nest egg for your child or grandchild - one way is an RESP


We often find ourselves wondering how we can build a nest egg for the next generation. One way to do this is to put money into an RESP in one lump or contribute to an RESP each year. The limitation of an RESP is that cash must be used for education although the grants received by government are attractive.

One needs to be aware that if you gift funds directly to a child, if they are minors, there are tax attribution rules. Any income that is received by those funds is attributed back to you and you pay the necessary tax.

Another interesting solution, which might be more suited to certain situations, is that you can loan money to an inter vivos trust for the child. An inter vivos trust is a living trust set up while you are alive. This would mean that you set up a loan to the trust to fund it. The interest rate for the loan is set by a government prescribed rate, which right now is an exceptionally low rate of one per cent.

So, if for example you lend $10,000 to the trust, the trust has to pay to you each year by Jan. 30 $100 in interest. The trust deducts the interest as an expense and you declare the $100 as interest income.  In the meantime any income or growth is declared by the trust.

An inter vivos trust can only run for 21 years. At that time it must be closed down and the loan repaid. The remaining assets are then paid to the beneficiary. The beauty of the loan currently is that the interest rate is fixed for the time of the loan. When the prescribed interest rate changes, it does not impact any existing loans. In the future, you can also loan more funds to the trust if you wish. The key point of this loan to trust strategy is that it avoids the attribution of income back to you.

This is a strategy that is often used to loan to a lower income spouse and referred to as a “spousal loan.” It can also be used for lending to a trust.

Because of the small nuances and complexity, it is best that you have a professional help you set it up.  They will help you ensure that the interest payment is made before the deadline and everything is clearly documented for the taxman.

When your child or grandchild eventually gets the cash they will more than likely be ecstatic to receive a small fortune. Now just teach them how to spend or invest it wisely. Please remember to always consult your investment advisor before taking any action.

Stuart Kirk is a Wealth Advisor with Precision Wealth Management Ltd. The opinions expressed are those of the author and may not necessarily reflect those of Precision Wealth Management Ltd. For comments or questions Stuart can be reached at, or 250-954-0247.

Just Posted

Retired Nanoose Bay teacher ‘Set for Life’ after $675K lottery win

Shannon plans to buy new sails for his sailboat

Country music star Aaron Pritchett back in Qualicum Beach to play benefit concert

Singer to headline Thalassa restaurant fundraiser for Ronald McDonald house

Qualicum school district sees utility costs go down

Capital funding opportunities promote clean energy and drive efficiencies

Order in the chambers: Qualicum Beach votes for council code of conduct

Coun. Robert Filmer’s motion passes unanimously at town meeting

Rainbow crosswalk in Qualicum Beach covered in mysterious black substance

‘It was disappointing to see this act of disrespect take place inside our community’

B.C. sockeye returns drop as official calls 2019 ‘extremely challenging’

Federal government says officials are seeing the same thing off Alaska and Washington state

Expanded support to help B.C. youth from care attend university still falling short

Inadequate support, limited awareness and eligibility restrictions some of the existing challenges

Ethnic media aim to help maintain boost in voting by new Canadians

Statistics Canada says new Canadians made up about one-fifth of the voting population in 2016

Cross-examination begins for B.C. dad accused of killing young daughters

Andrew Berry is charged in the deaths of six-year-old Chloe and four-year-old Aubrey in 2017

Dog attacked by river otters, Penticton owner says

Marie Fletcher says her dog was pulled underwater by four river otters in the Penticton Channel

BC SPCA overwhelmed with cats, kittens needing homes

Large number of cruelty investigations, plus normal ‘kitten season’ to blame

Wife charged in husband’s death in Sechelt

Karin Fischer has been charged with second-degree murder in the death of her husband, Max

B.C. Hydro applies for rare cut in electricity rates next year

Province wrote off $1.1 billion debt to help reverse rate increase

Most Read