Registered education savings plans (“RESPs”) have become a popular financial planning tool for saving money for a child’s post-secondary education. However, they raise many issues from an estate planning perspective that deserve consideration.
A common misconception is that a RESP is actually a trust, and upon the death of the subscriber of the RESP, the assets comprising the RESP will be held in trust for the benefit of the beneficiaries identified in the contract between the subscriber and the promoter. This is in fact not the case. A RESP is the property of the subscriber and upon his or her death it becomes an asset of the subscriber’s estate and is subject to the terms of his or her Will. Thus, it is an asset that must be addressed when considering the testamentary planning goals of the subscriber.
There are generally two planning options available for dealing with a RESP: (i) continuing the RESP for the benefit of the beneficiaries; or (ii) winding up the RESP and having the contributions returned to the estate for distribution to particular beneficiaries or for inclusion in the residuary estate.
Given that most RESPs are established for the purpose of assisting particular beneficiaries in the furtherance of their education, if the RESP still exists on the subscriber’s death, it is likely his or her intention that the RESP continue to be made available for such purpose. Accordingly, it is important that the estate planning process give consideration to what the subscriber’s goals and intentions are with respect to the RESP and that the subscriber’s Will gives some assistance to the estate trustees with respect to the manner in which they should deal with the RESP from an estate administration perspective.
Future blogs will address other planning and tax issues arising with respect to RESPs.
Best wishes for a great weekend,