Planning for your baby’s future

The arrival of a new baby is joyful and exciting, but also comes with a series of responsibilities. Beyond day-to-day tasks associated with changing diapers and adjusting to feeding schedules, there are important responsibilities associated with planning for the baby’s personal, educational, and financial future. Taking the following steps will help new parents ensure that they are effectively planning for a child’s future.

Create a Will

Creating a Will is an important first step in ensuring that a child will be looked after in the event of an untimely death. Appointing a guardian for a child in the Will ensures that an appropriate person will be tasked with care of the child in the event of a parent’s untimely death.

A Will also ensures financial security for children, who can be left their parents’ assets with age-appropriate oversight and distributions. Without a Will, the rules of intestacy will govern the distribution of assets, which may not result in what a parent intends for their child.

Create a Registered Education Saving Plan (RESP)

A RESP is a government-sponsored savings plan which helps anyone – including but not limited to parents – save for a child’s post-secondary education. The principal benefit of a RESP is that it is ‘tax-sheltered’. Money held in an RESP can be invested without the growth being subject to taxation. In addition, the federal government will match a portion of the contributions into an RESP under the Canada Education Savings Grant (CESG), with a lifetime maximum of $7,200 per beneficiary.

There are lifetime and yearly contribution limits to using RESPs. Withdrawals may be subject to tax if made inappropriately. No contributions may be made after the calendar year in which the plan has been open for 31 years, and the plan must be wound up during the calendar year in which the plan has been open for 35 years.

Buy life insurance

In the event of a disaster which takes the life of both spouses, life insurance provides assurance that the economic needs of the child will be met. Even where there is one parent who is living, life insurance can provide additional assets to cover loss of income and additional expenses associated with caring for a child.  Accordingly, life insurance should be purchased by parents as soon as possible as part of prudent financial planning for a child. If a parent-to-be already has life insurance, they may wish to consider increasing coverage.

Life insurance comes in different forms and with different caveats. In order to determine what types of life insurance make the most sense for your situation, please contact a TEP.

Create a Power of Attorney or Mandate

A Power of Attorney (or Mandate in Anticipation of Incapacity in Quebec) is a legal document whereby a trusted person is appointed to make decisions for an adult in the event that they become incapable of doing so for themselves. This document can give the named attorney the legal authority to look after an individual’s personal wellbeing and/or finances (and those of their dependants). Parents can benefit from peace of mind knowing that their child’s best interests are served by someone they trust.

If you have questions or to determine what additional planning may benefit your growing family, please consult a TEP.

Disclaimer

An article of this kind can never provide a complete guide to the law in these areas, which may be subject to change from time to time. The opinions and suggestions made within this article should not be interpreted as specific advice in relation to any particular individual or individuals. Neither STEP, the article author or their firm accept responsibility for any loss occasioned by someone acting or refraining to act on the basis of the opinions and suggestions contained in this article. More