How RESPs Fit into Your Estate Plan.

RESPs are effective savings tools for children and are very popular with parents and grandparents. But not many people think about what will happen to RESPs money when the individual who opened the RESP dies.

The Problem
RESPs are investment contracts that are between the individual opening it (the subscriber) and a financial institution. Therefore, when the subscriber dies the RESP becomes part of his/her estate. Beneficiaries of the estate will likely want to maximize their inheritance and it is quite common for the executor to collapse the RESP and distribute the funds to the estate’s beneficiaries. Since RESPs are set up for post-secondary education purposes, this is likely contrary to what the subscriber would wish.

The Solution
The simplest solution to this problem is to open the RESP with a joint subscriber such as a spouse or relative. This way, when you die, the contract will carry on with a joint subscriber as the sole owner. However, there are
some potential pitfalls that should be noted. Firstly, the joint subscriber
may collapse the plan when the other subscriber dies and simply take the funds for themselves. Secondly, if the joint subscriber dies after the plans have been used then not much has been solved.

Another way to keep a RESP going after death is to name a successor subscriber in your Will. This way, not matter whether there is one subscriber or two, when the subscriber(s) die they have named a replacement subscriber who can take over the management of the RESP. This strategy works exceptionally well as long as the person who is named as successor can be trusted to keep the RESP in force. Otherwise, as the new subscriber, they could collapse the plan and take the funds out for themselves.

Lastly, and perhaps most effective, a RESP subscriber could have a testamentary trust set up upon his/her death. The trustee must follow the direction established in the trust. This basically eliminates the problem of the original successor’s wishes being disregarded. The trustee could be the individual that the subscriber was originally intending to appoint a successor or the executor of the estate. There is also the option of the executor posthumously funding the RESP on your behalf, up to the limit of $50,000.

Consider making any RESPs that you may subscribe to as part of your estate plan to avoid its collapse upon your death. No matter which option you choose, it is always recommended you work with a financial and legal professional to make sure your last wishes are fulfilled.