Planning for your baby’s future

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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)

An 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 an 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, sufficient 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, at least while the child is financially dependent on the parents.

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 well being and/or finances (and those of their dependents). 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.

Who should I appoint as legal guardian for my children?

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A parent may appoint a guardian and custodian of their child in their Will, subject to Court approval for the remaining time where the child is a minor. The term ‘minor’ refers to a child who is under the age of majority, which is 18 or 19 depending on the jurisdiction in Canada1. When considering who to appoint as a legal guardian, it is important to understand the distinction between appointing someone to care for the child and appointing someone to deal with their property.

Caring for minor children

An individual who is appointed to care for a minor child has custody of a child and is tasked with the rights and responsibilities of a parent in respect of that child. The person with custody will generally make decisions regarding the child’s living arrangements, schooling, and if necessary, medical treatments.

The ability to appoint someone to take custody of children is subject to certain restrictions, which can include that:

  1. The person naming a custodian must be the only person who is entitled to custody of that child. If someone else with legal custody of the child survives the first parent’s death (such as the child’s other parent) then the appointee will not acquire custody.
  2. The appointee must consent to act as the child’s custodian.
  3. In some jurisdictions, the appointment of a custodian is subject to approval by the Court.

When considering whether to grant an order for custody, the Court will consider the best interests of the child, including the child’s needs and circumstances and whether the person applying has any history of violence or abuse. The Court will also consider the views of the deceased custodian of the child as provided by their Will, but the Court has complete discretion to make the appropriate order and is not bound by the designation in the Will.

Dealing with your minor children’s property

The person appointed to care for your child generally has the right to deal with limited assets (in most cases up to $10,000.00, which, it should be noted is generally the maximum a parent may deal with absent a Court Order). In order to obtain the right to deal with additional assets, a Court Order giving the person the authority to manage the property must be obtained in most jurisdictions. This can be referred to as a guardianship of property or a trusteeship, depending on the jurisdiction.

Who should I appoint?

An individual has complete discretion over appointing a guardian. In most cases, the person caring for the child is either a close friend or family member. The following is a list of factors to consider:

  • Pre-existing relationship with the child
  • Location
  • Age
  • Health
  • Suitability

Ultimately, the individual appointed should be someone trusted with that child’s welfare.

For further information regarding guardianship for minor children, please consult a TEP.

1. The age of majority is 18 in six provinces: Alberta, Manitoba, Ontario, Prince Edward Island, Quebec, and Saskatchewan. The age of majority is 19 in four provinces and the three territories: British Columbia, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, and Yukon.