A failure to include a Registered Education Savings Plan (RESP) in your estate plan can be a costly mistake and result in the contents of your RESP being unnecessarily depleted or even being paid to someone other than the child who was supposed to benefit from it.
RESPs are an important part of many Canadians’ financial plans, providing a vehicle for saving for a child’s post-secondary education.
Several key advantages to RESPs have led to their popularity including the Canada Education Savings Grants, tax deferral and income splitting opportunities.
Unfortunately, RESPs are often overlooked from an estate planning perspective leading to unintended consequences on the death of an RESP owner.
A common misconception is that on the death of an RESP owner, the RESP will continue for the benefit the child or grandchild beneficiary but this is not the case. An RESP will become an asset of the deceased person’s estate. In the absence of alternate provisions in your will or in your RESP contract, your executor may be required to collapse the RESP and distribute the funds to the beneficiaries of your will, at a significant tax cost including the repayment of any grants received
In order to ensure that your RESPs will continue for the benefit of your children, grandchildren or other intended beneficiaries if you die, you can appoint a successor subscriber to the RESP in your will and set out your wishes for handling the RESP going forward.
A successor subscriber would be authorized to make additional contributions to maximize benefit from Canada Education Savings Grants, authorize withdrawals to beneficiaries going off to college or university, and to collapse the RESP when it is no longer necessary.
This is a prudent practice even in cases of joint subscribers. Your lawyer can review your RESP contracts and draft your will to ensure that your RESP will be dealt with according to your wishes to avoid any unintended consequences.
submitted by Alayna Longstaffe a real estate, estates and business lawyer at Wolfe, Smith & Forster LLP
