RESP: Important estate planning tips

If you have set up and contributed to a Registered Education Savings Plan (RESP) for one or more of your children or grandchildren, you’ve done some valuable planning for their future education.

But your planning could unravel if you do not also address what is to happen with the RESP when you die.

On your death, the RESP does not pass to the beneficiaries named in the plan. The RESP belongs to you – so if you are the sole subscriber, the RESP would be an asset of your estate on your death. In provinces other than Quebec, if you and your spouse set up the RESP together as joint subscribers, it would pass to the surviving spouse when the first of you dies and be an estate asset of the second of you to die. In Quebec, each spouse would have a separate half interest that would form part of the estate.

On death, unless otherwise stated in your will (or unless the beneficiaries of the residue of your estate otherwise agree):

• The RESP would be collapsed and all unused grants and bonds received from the government would have to be repaid.
  
• The RESP funds will be distributed as part of the residue of your estate, which is often not what was intended. For example:
  • Mary's will left her estate to her two children equally. Since there was nothing in her will dealing with the family RESP she had established, the RESP funds were distributed equally between her children as part of her estate when she died – even though her older child had already received his share for his education.
    
  • Paulo’s will left his estate to his three sons equally and did not deal with the RESP he had established for his only grandchild, the daughter of one of his sons. When Paulo died, the RESP funds were divided equally among all three sons, despite Paulo’s clear intention to provide separately for his granddaughter’s education.
    
• Where applicable, probate fees would be payable on the RESP value.
  
• The funds would be available to any estate creditors.

Some important estate planning tips for RESPs

• Include a specific clause in your will setting out your intentions with respect to the RESP, particularly if you wish to have the RESP maintained for your children or grandchildren, rather than distributed as part of your estate. This clause could include the appointment of a successor subscriber to look after the interests of your children or grandchildren. However, keep in mind that the successor is not obligated to maintain the RESP and could even withdraw the contributions. Alternate options include authorizing your executor to appoint a replacement subscriber or else appointing a testamentary trust as the successor subscriber, so that the trustee of the trust would be required to follow the trust terms that you set out.
  
• Consider if you want to authorize your executor to make RESP contributions from estate assets.
  
• Consult with your lawyer about whether your power of attorney should also include specific provisions dealing with any RESPs you establish in case you become incapable of managing your financial affairs, such as the authority to use your funds to make RESP contributions.

Always keep your advisor informed of any changes to your will so he or she can ensure your RESP and other investment strategies are properly accounted for in your overall wealth management plan.