As grandparents, one of our greatest joys is watching our grandchildren grow and flourish. The Registered Education Savings Plan (RESP) is a reliable tool to help them with the increasing cost of post-secondary education; however, ensure you have it properly secured in your will.
I am not a financial planner or advisor, nor a lawyer. But I am a grandparent who just went through the process of adding a RESP to a will. Quite frankly, it was surprising how inconsistent the information was from the professionals I was counting on to help me get it right.
Here is what happened. Please keep in mind that this was for an individual RESP subscriber, not the family plan.
A family friend wanted to help ensure my grandchildren have the funds they need to pay for post-secondary education. He had set up a RESP, knowing he would be the sole contributor. It was a good choice because, through the Canadian Educations Saving Grant (CESG) program, the federal government matches 20% on the first $2,500 contributed annually to a maximum of $500 per beneficiary per year. That is $7,200 per beneficiary up to age 18.
I agreed to find out what would happen to the RESP on his death.
When it comes to RESPs and the death of the subscriber, the first key learning was that RESPs are not treated the same as Tax-Free Saving Accounts (TFSA) and Registered Retirement Income Funds (RRIF). RESPs are considered property, so had he not identified a subscriber to take over the RESP in his will, the entire amount of the RESP rolls into the estate.
It doesn’t end there. An RESP has to be listed in the will, distinct from the other assets. Specifically, the new subscriber must be listed and also the beneficiaries and how the asset is to be divided between them (if there is more than one).
Since the RESP should be listed in the will, I turned to the estate lawyer, who said it was not needed in the will. Apparently, financial institutions that provide the RESPs are considered the “promoter”, in RESP talk, and provide direction on how to ensure the RESPs are protected at their end by having the subscriber identify a subscriber. I asked the financial advisor about the paperwork from his financial institution. He said he would look into it. Despite many inquiries on the status of his inquiry, I kept hearing that he was still waiting on an answer from his head office. In the meantime, he recommended I talk to the estate lawyer.
At this point, I had gone full circle. I asked the estate lawyer and the financial advisor to please connect and help resolve this. Of course, they didn’t. Suffice to say, I am glad I did my own research and didn’t rely on the advice of either of them. I insisted the lawyer put the appropriate information in the will so it is clear, not only who the subscriber will be, but also how the asset will be distributed amongst the beneficiaries. She again insisted I was wrong. After I provided her with the resources below, she made the appropriate changes. Finally, peace of mind.
Here is specific information and resources I found helpful. Keep in mind that my experience was for a very narrow perspective of the RESP process. It is imperative that you do your own research and talk to your financial advisor and estate lawyer.
i) the RESP info line – 1-888-276-3624
ii) Revenue Canada 1-800-267-3100
iii) a helpful article from BMO.com
Single subscribers: If there is only one subscriber, that individual can name a successor subscriber in their will to maintain the RESP after their death and outline how contributions are to be funded. If the maximum RESP contribution limit has not been reached, the succeeding subscriber can continue with RESP contributions after the primary subscriber’s death.
iv) Advisor’s Edge, a resource for credentialed financial advisors
A RESP is not a trust. It is a contractual arrangement between a subscriber and a promoter (usually a financial institution). If there is no surviving joint subscriber, an RESP contract becomes part of the estate of a deceased subscriber, and if proper planning is not in place, the contract’s value belongs to the residuary beneficiaries of the estate.
I hope this is helpful.