By Allison Sharkey and Jaicee Payette
If you have a Registered Education Savings Plan (an “RESP”), it is important to take this asset into consideration when undertaking your estate planning. In this article, we discuss the nature of the RESP, how an RESP passes on death, and estate planning strategies for the RESP.
It is a common misconception that an RESP is form of trust and that the RESP therefore will not be an asset of your estate when you die. In fact, an RESP is a contractual relationship between the person who created and makes contributions to the RESP (the “Subscriber”), and the person who is responsible for paying contributions out of the RESP and to the designated beneficiaries (the “Promoter”). If you have set up and paid into an RESP, you are likely the Subscriber. The Promoter is the financial institution with which the RESP is held.
An RESP may have more than one Subscriber; that is, it may be jointly held. It is common for parents to jointly hold RESPs for the benefit of their children. With a jointly held RESP, the RESP and the contractual rights associated with it automatically pass to the surviving Subscriber when one Subscriber dies.
When the last Subscriber has died, the RESP funds are an asset of the estate, and the RESP may continue as a contract between the Subscriber’s personal representative (the executor or administrator of the deceased Subscriber’s estate) and the Promoter.
Depending on the specific provisions in the original contract between the Subscriber and the Promoter, it may not be possible for the personal representative to assume all of the rights that the Subscriber had while alive. For example, the personal representative may not be permitted to add or remove beneficiaries to the RESP, make withdrawals, or direct educational assistance payments to the beneficiaries without enacting a further step to obtain the full rights that would have been possessed by the Subscriber. Sometimes, this “further step” requires that the personal representative make contributions to the RESP, which can be an inconvenience to the personal representative.
It is possible to determine what rights the personal representative of a Subscriber will have on the Subscriber’s death by engaging a legal professional to review the RESP contract and determine if the terms of the contract:
- permit the Subscriber to name a succeeding Subscriber;
- impose any requirements on the succeeding Subscriber that they perform any additional steps (for example, making a contribution to the RESP) in order to obtain the full rights of the previous Subscriber; and
- allow for a Subscriber’s personal representative to become a succeeding Subscriber.
If you cannot, or choose not to, arrange a review of the RESP contract, then at minimum you should include provision for the RESP within your Will.
In addition to allowing you to appoint a successor Subscriber, dealing with your RESP in your Will can allow you to set out your wishes regarding the management and distribution of your RESP after your death. You may consider whether you want your successor Subscriber to be able to use funds from your estate to contribute to the RESP, whether and when they should have the ability to collapse the RESP after your death, and how you would like the funds to be used if it is not possible to distribute the RESP to the intended beneficiary.
It is important to be aware that what you want to happen to you RESP after your death may not be in accordance with the other provisions of your Will. For example, if you set up a group RESP for your grandchildren, but your Will provides that your estate is to be divided equally among your children, then on your death your personal representative will be required to collapse the RESP and pay the proceeds to your children, unless all of your children agree that the RESP funds may be used for your grandchildren. This problem may be avoided by setting out your wishes for the distribution of the RESP in the Will, as distinct from the distribution of the other assets of your estate.
In sum, as a Subscriber, your RESP becomes an asset of your estate upon your death. The terms of the contractual agreement governing the RESP may not be in accordance with your wishes for how the RESP should be dealt with after your death. Including provisions in your Will appointing a successor Subscriber and setting out your wishes with respect to the RESP can be a straightforward way to deal with this problem. When undertaking an estate plan, it is prudent to consult with you legal advisor regarding strategies for dealing with your RESP on death.