A guide to gifting money to children: Thoughtful steps for lasting impact

Define the purpose of your gift

A gift can go beyond financial aid when it’s given with purpose. Consider how you’d like these funds to impact your child’s life –– perhaps to fund their education, support their first home purchase, or encourage savings. When a gift is attached to a specific goal, it can help your child understand its importance and use it wisely. If your aim is to foster responsibility, a smaller, recurring gift might encourage budgeting, disciplined spending, allowing them to develop essential financial skills.

Set appropriate expectations

Open and clear communication with your children is crucial to prevent misunderstandings and maintain family harmony. Start by discussing the intent behind the gift and any expectations for it use. While some parents may feel it necessary to impose restrictions, such as limiting the use to education or housing, others may prefer to trust their children’s judgment.

Asses your own financial health

Before making a gift, take a thorough look at your financial needs. Gifting shouldn’t compromise your own financial security, so it’s essential to determine how much you might need to maintain your lifestyle, particularly if you have a long life ahead. One approach is to gift only a portion of what you feel comfortable with now, knowing that you retain enough resources for any future needs. This approach can relieve financial stress for your children without jeopardizing your own stability.

Consider a custodial account or a trust

If you’re planning to gift a substantial amount to a minor, establishing a custodial account or trust can be a wise choice. Custodial accounts such as a Registered Education Saving Plan (RESP) or Tax-Free Saving Account (TFSA) allow the gifted funds to grow tax-free under the child’s name. However, a TFSA can only be opened for a child who is 18 years or older. A trust, on the other hand, provides more control over when and how the funds are accessed, which can be valuable if you have concerns about the child’s maturity or readiness to manage a large sum. These options offer flexibility and structure, aligning the gift with your family’s long-term financial goals.

Encourage financial literacy

A well-timed gift can be a powerful opportunity to instill financial wisdom. If you believe your child is ready, engage is discussions about money management, such as budgeting, saving, and investing. These conversations can pave the way for responsible decision-making, equipping your child with skills that will last far beyond the gift itself. Knowing that they’re prepared can give you peace of mind, making the gift even more meaningful.

Be mindful of family dynamics

Finally, consider the broader impact of your gift on family relationships. Open communication with all family members about your intentions can reduce misunderstandings and feelings of inequity among others. Transparency is key to fostering family harmony, ensuring your gift serves as a positive legacy rather than a source of tension.

Planning for lasting impact

Gifting to children is about more than just handling over money –– it’s an opportunity to create a legacy, instill values, and support the ones you love in meaningful ways.

Create plans with purpose. Aligning your gifts with family goals and staying mindful of both tax implications and family harmony will ensure you make a lasting impact. Attentive guidance can make all the difference in navigating these decisions smoothly and with confidence.

For those ready to ensure every monetary gift aligns with their broader financial and family vision, speaking with an advisor can help you leave a legacy that endures.