Leaving Assets to Grandchildren in Your Ontario Estate Plan

Many grandparents want to leave something directly to their grandchildren — not just to their own children. Whether the goal is to fund education, give grandchildren a head start, or simply ensure they are remembered in the estate, leaving assets to grandchildren in Ontario requires attention to three things: legal structure (who controls the money until they are adults?), tax (the "attribution rules" can shift income back to you), and coordination with what your own children receive.

Why You Can't Simply Leave Money to a Minor Grandchild

In Ontario, a minor (under 18) cannot legally hold property or receive a bequest directly. If your will leaves money to a grandchild under 18, the funds must be managed by someone — and if your will does not provide for that, the money may go to the Office of the Public Guardian and Trustee (OPGT) until the grandchild turns 18, at which point they receive everything in a lump sum.

This is almost never what grandparents want. Proper planning requires either:

1. A testamentary trust in your will, or
2. A specific designation to an RESP or another registered account.

Testamentary Trusts for Grandchildren

A testamentary trust is a trust created in your will that comes into effect when you die. You can create a separate trust for each grandchild (or a single trust that holds funds for multiple grandchildren) and appoint a trustee to manage the funds.

Key decisions in drafting

Who is the trustee? This is usually a parent of the grandchild, another trusted family member, or a professional trustee. If the trustee is a parent, they manage the funds for their own child — which can work well, but may feel like you are giving the money to the parent rather than directly to the grandchild. Consider naming a different trustee if independence matters to you.

How should funds be used? Common mandates: education expenses, health care, starting a business or home purchase. You can restrict or leave open-ended — the more specific your instructions, the more constrained the trustee.

When does the grandchild receive the funds outright? Popular ages: 21, 25, 30. A staged approach works well: one-third at 21, one-third at 25, and one-third at 30. This prevents a very young adult from receiving a large inheritance before they have the life experience to manage it.

What if a grandchild dies before receiving the funds? Your will should address this: does the deceased grandchild's share go to their siblings? To their parent? To your estate?

The Tax Dimension: Attribution Rules

If you make lifetime gifts of income-producing property to a grandchild under 18, the income earned on that property is typically "attributed back" to you for tax purposes under the federal Income Tax Act. This applies to gifts of investments during your lifetime — it is meant to prevent income-splitting by routing investment income to low-tax family members.

On death, the attribution rules work differently. Income earned by a testamentary trust for a minor grandchild is taxed in the trust or attributed based on complex rules — the interaction requires advice from a tax professional if the amounts are significant.

For grandchildren who are adults (18 or over) at the time of the gift or inheritance, the attribution rules generally do not apply to income earned on gifted property.

Using an RESP for Grandchildren

A Registered Education Savings Plan (RESP) is often the most tax-efficient way to help grandchildren with education costs:

• Contributions grow tax-deferred inside the plan.
• Canada Education Savings Grants (CESG) — government grants that top up contributions — are available, as of writing, subject to annual limits. Verify the current grant amount with the CRA.
• On withdrawal for qualified education expenses, the investment income is taxed in the student's hands (typically at a low marginal rate).

Grandparents as RESP subscribers: You can open an RESP and name a grandchild as the beneficiary, or contribute to a plan already opened by the parents. You control the account during your lifetime. The RESP does not pass through your will — on your death, the plan's terms and the plan sponsor's rules govern what happens. Review these rules with your financial institution if you want the RESP to continue after your death.

Estate contributions to an RESP: your will generally cannot directly fund an RESP — contributions must come from a qualified subscriber during their lifetime. Your estate may be able to continue contributions if the RESP agreement permits a transfer of the subscriber role to your estate or to the parents.

Generation-Skipping: Leaving Your Children's Share Directly to Grandchildren

Some grandparents want to "skip" their own children and leave directly to grandchildren — perhaps because the children are already financially comfortable. This is entirely legal and can be effective, but consider:

• Your children may have dependant support claims if they were financially dependent on you — even a partial dependant can apply for support from your estate.
• Coordination with your children: grandchildren who receive a large inheritance may be in a different financial position from their parents, which can create family friction.
• Tax: a "generation-skipping" structure does not have the same tax consequences in Canada as in the U.S. (there is no generation-skipping transfer tax in Canada), but the income tax implications on the deemed disposition at death still apply.

Practical Tip: Equal vs. Per Stirpes

When leaving assets to grandchildren in a will, specify whether you want an equal share per grandchild (however many there are) or a per stirpes distribution (each of your children's family lines shares equally, regardless of how many grandchildren are in each line). This prevents situations where a child with four children receives proportionally much more than a child with one child.

Frequently asked questions