How to Leave Money to Your Grandchildren: Estate Planning Tips

In my experience, most people name their children as the primary beneficiaries of their estate. However, you can also designate other recipients—extended family, friends, or charities—to receive a dollar amount, a particular asset, or a percentage of your estate. Naming grandchildren as beneficiaries is a common choice, but it comes with specific legal, tax and practical considerations that are worth understanding before you finalize your plans.

How age and capacity affect beneficiary decisions

The age and maturity of a grandchild influence how you should structure any gifts to them. If a grandchild is an adult and capable of managing their own affairs, you can name them directly as a beneficiary of a registered plan, an insurance policy, or in your will. For minors or young adults who are not ready to manage an inheritance—or for grandchildren who face special challenges such as a disability, addiction issues, or other vulnerabilities—placing their inheritance in trust is often the wiser option.

Your will can appoint a trustee to hold assets on behalf of a grandchild. Parents often serve as trustees for their child’s inheritance, but if you have grandchildren from multiple families you may decide to name different trustees for different trusts. A properly drafted trust can control when and how money is distributed, for example by specifying that distributions occur at certain ages or milestones, or by setting conditions for use of funds.

Some trusts are limited in duration, ending when a beneficiary reaches a specified age or after a set number of years following your death. Other trusts can continue for the beneficiary’s lifetime. A Henson trust, for example, is commonly used for a disabled beneficiary to preserve access to government benefits while ensuring funds are available to support the person’s needs.

What is a qualified disability trust?

Qualified disability trusts created after an individual’s death for a disabled beneficiary often receive favorable tax treatment. Unlike many testamentary trusts that can be taxed at the top marginal rate, a qualified disability trust may be taxed at graduated rates similar to an individual taxpayer, allowing for more equitable income attribution between the trust and the beneficiary. Because tax rules are complex and vary with circumstances, discussing options with a planner or lawyer experienced in disability planning is advisable.

If a child or grandchild has a disability, registered plans such as RRSPs or RRIFs can, in some situations, be transferred to the recipient’s RRSP, RRIF or Registered Disability Savings Plan (RDSP), permitting tax deferral and potentially reducing immediate tax liabilities on death. These transfers have specific eligibility rules and implications that should be reviewed with a qualified advisor.

Assets you can leave to grandchildren: money, accounts and property

Different types of assets pass in different ways and carry different tax consequences. Tangible gifts—personal mementos, household items or a car—often have minimal tax consequences, although provincial probate or estate administration fees may still apply. Real property, such as a cottage, and registered accounts like RRSPs or RRIFs typically trigger tax events and can reduce the residual value of your estate once taxes are paid by the estate.

Designating a grandchild as beneficiary on a TFSA, RRSP, RRIF or an insurance policy generally allows those assets to pass outside of your probate estate and directly to the named beneficiary. That can provide a cleaner, faster transfer, but you should weigh the tax and practical implications carefully. When a minor is named as beneficiary and funds pass directly to them, the recipient may face limited investment choices or an immediate transfer when they reach the age of majority, which may not align with your wishes.

Registered education savings plans (RESPs) work differently: the named RESP beneficiary is the person for whom the education savings are intended, and that designation governs who can use the grants and income for education. The RESP beneficiary is not the same as a testamentary beneficiary who inherits on the death of the account holder. Some institutions let you name a successor subscriber or include provisions in your will to appoint someone to manage or take over the RESP. If no successor is appointed, the account may become part of your estate and could be used in ways that were not intended.

Taxes, annuities and other planning tools

There are techniques to reduce the immediate tax impact of inherited registered plans. For example, when an RRSP or RRIF is left to a financially dependent minor, it may be possible to convert funds into a term-certain annuity that pays out until the child reaches adulthood, spreading the taxable income over several years rather than recognizing it all in the year of death. Even when registered plans are paid into an estate, an executor may have options to manage tax consequences in ways that are fairer to younger or dependent beneficiaries. These strategies are situational and require professional advice.

Choosing trustees and naming beneficiaries thoughtfully

When planning for grandchildren, think carefully about who will administer any trusts and whether you want distributions tied to specific ages, educational milestones, or other conditions. Trustees should be trustworthy, organized and willing to take on the administrative responsibilities involved. Consider alternate trustees in case your first choice is unable or unwilling to serve.

Also consider whether you want gifts to pass directly to beneficiaries via beneficiary designations on accounts and policies, or whether you prefer to leave assets through your will so that a trust can govern their use. Passing assets outside the will is efficient, but leaving them in your will allows you to attach conditions and oversight through a trustee.

Estate planning for grandparents: final thoughts

Estate planning is a highly personal process. Most people name a spouse or children as primary recipients, but including grandchildren is a reasonable option when it aligns with your family dynamics and intentions. Grandchild beneficiaries raise special considerations—age, capacity, tax effects, probate implications and trustee selection—that are best addressed proactively. A clear plan and properly drafted documents will help ensure your wishes are carried out and your grandchildren are supported in the way you intend.