A Smart and Simple Way to Transfer Wealth to Your Grandchildren in Canada

Using Whole Life Insurance to Transfer Wealth to Your Grandchildren, Tax-Free

If you’re a grandparent who wants to leave more than memories, you may be looking for a smart and meaningful way to support your grandchildren's future. One powerful and often-overlooked strategy is to purchase a participating Whole Life insurance policy on your grandchild.

At first glance, life insurance might not seem like the obvious choice when it comes to building a financial legacy - but when structured the right way, it can be one of the most effective, flexible, and tax-efficient gifts you’ll ever give.

The Strategy at a Glance

This approach is both simple and elegant. You (the grandparent) purchase a Whole Life insurance policy on the life of your grandchild. Each time you contribute premiums to the policy, a portion covers the cost of life insurance, while the rest is invested within the policy’s cash value component.

This investment grows tax-sheltered, year after year.

At some point in the future, you can transfer the policy - and all the accumulated cash value - to your grandchild or their parent (your child), completely tax-free. The policy can continue to grow tax-sheltered even after the transfer.

This strategy creates a living legacy that matures over time and can support your grandchild’s needs - whether for education, a first home, starting a business, or long-term financial security.

Why This Is a Unique Opportunity

There are only a few tools in Canada that allow wealth to grow and be transferred tax-free, especially for younger generations. Outside of limited programs like the Tax-Free Savings Account (TFSA) or Registered Education Savings Plan (RESP), the options are limited.

Whole Life insurance offers a rare combination of benefits:

• Unlimited potential contributions (within limits set by the policy)
• Tax-deferred growth for decades
• Tax-free transfer of the policy to your grandchild or their parent
• Simplicity - no need for complex legal structures or trust agreements

You retain control of the asset for as long as you want—and can pass it on when the timing feels right.

What Do You Gain as the Grandparent?

As the policy owner, you receive:

• Tax-free investment growth during your lifetime
• Full control over the policy and its cash value
• Flexibility to transfer ownership to your child or grandchild whenever you choose
• A lasting legacy, free from probate or capital gains taxes

Whether your goal is to help fund your grandchild’s future or simply to give a financial head start, this strategy lets you do it in a tax-smart way - without relying on large estate settlements or complicated trust arrangements.

What’s in It for Your Grandchild?

Once the policy is transferred, your grandchild benefits in multiple ways:

• A valuable financial asset with years (or decades) of tax-deferred growth
• Permanent life insurance coverage that will last them a lifetime
• Flexible access to funds - they can make withdrawals, take policy loans, or use the policy as collateral for a bank loan
• Potential creditor protection, depending on how the policy is structured
• Tax-free access to the cash value in case of a disability (in some cases)

They can use the funds for whatever life brings - university tuition, a down payment on a home, launching a business, or managing healthcare costs. It’s a financial resource that evolves with their needs.

Lock in Insurance While They’re Young and Healthy

One of the biggest advantages of setting up a Whole Life policy early in life is that you lock in low-cost coverage when the child is young and typically very healthy. Even if they develop health issues later, the coverage remains intact.

This ensures they have guaranteed life insurance for themselves and their future family, even decades down the road.

Avoid the Hassles of a Trust

Some grandparents consider setting up formal trusts to leave money to their grandchildren, but trusts can be expensive, time-consuming, and complex to manage.

A Whole Life insurance policy offers a much simpler alternative - with built-in tax advantages, no annual tax returns, and no legal hoops to jump through.

You own the policy. You decide when and how to pass it on. It’s that straightforward.

Optional Flexibility: Transfer to Your Child First

In some cases, you may choose to transfer the policy to your own child first (i.e., the parent of your grandchild). This gives them the ability to manage the policy on behalf of the grandchild and decide when to eventually hand it over.

This two-step approach allows for more flexibility and generational planning.

A Meaningful Legacy That Lasts

The truth is, not all gifts are created equal. Toys and trips fade - but a well-funded life insurance policy can grow for decades and support your grandchild for life.

By using this strategy, you’re giving your grandchild:

• A strong financial foundation
• A tool for long-term planning
• A quiet but powerful expression of love and care

Let’s Explore What This Could Look Like for Your Family

This article is provided for general information only and is not legal, accounting, or tax advice. Every family is unique. A personalized discussion can help you understand how this strategy might work in your specific situation.

Set up a consultation with a Garrett Agencies advisor to find out how this smart, low-maintenance strategy could be the legacy that keeps giving.