Securing Your Children’s Future
The Financialist • Issue 119 • October 2013
BY CHRIS EYNON CFP FMA CPCA
My wife and I had a baby boy on August 5, 2011. He just turned two and shares his birthday with his grandmother Ann. Liam is my first child and my wife Rita’s second. The immediate impact of Liam joining our lives was love, joy, excitement and lack of sleep!
However, I knew very well that there were many short and long-term financial planning implications that need to be discussed and addressed when a child is born. My wife’s first child, Lauren (my step-daughter) came into my life when she was 5 years old (She is now 22!). Just like the birth of Liam, Lauren entering my life created financial planning issues that needed to be considered. While raising children is a time-consuming joy, it is very important to find time to discuss and consider all the financial risks and implications, so when your child eventually sleeps at night, you can as well.
It is often said that children are our future. For children to have the best chance for a bright future, we need to consider the cost of education. Postsecondary education, either near home or away, is expensive. Thankfully, the Canadian government has created a savings vehicle to help parents plan and prepare for the costs associated with education.
The Registered Education Savings Plan is a very powerful tool to save tax-free funds for your children’s future. You can begin contributing the year your child is born and the Canadian government will add 20% on every dollar of the first $2,500 you contribute each year until your child turns 17 (with some conditions). This is an effective way to prepare for the cost of education.
There are various points during your life when it is important to assess the financial implications of passing away. If you are single with no children, typically the implications are small. However, when you have children, you now have a responsibility to make sure they are cared for till they can care for themselves. Life insurance held through group plans at work can be helpful. However, these plans are tied to your job and if you lose or change your job or your employer changes the plan, you may lose your insurance coverage. Thus, it is advised that each spouse has individual life insurance to cover the risk of prematurely passing away. Individual life insurance for an amount and time frame strategically determined between you and your advisor is a necessity.
There is also the risk that one of the income earners in the home becomes disabled and is unable to work. Many employers offer disability insurance as part of their benefits package, but you should review the details to make sure that the group plan is sufficient to cover your needs.
Part of adequately planning for the possibility of a premature death is making sure that assets you leave to your children are well-managed and properly distributed. This could be accomplished through a testamentary trust. A testamentary trust is addressed and created through your will.
Regardless of your situation, children or no children, simple wishes or complex, everyone should have a will. While you are getting your will prepared, you will want to have a power of attorney drawn up so that your spouse can act on your behalf for financial matters if you are unable to do so yourself.
A surprisingly large number of Canadians have not taken the time to write a will. It is natural for people to avoid thinking about their own mortality. However, dying without a will can create significant problems depending on the complexity of your personal situation. If you and your spouse both pass away prematurely, you will want to make sure that any minor children have a legal guardian.
The birth of my son Liam has been one of the best things to happen to our family. Watching him and his big sister together is a joy. My wife and I want to ensure that they are well cared for and getting all our ducks are in a row will help make sure we can both sleep at night…now that he finally is.