In my last blog, I wrote about some of the preliminary estate planning issues that should be considered with respect to Registered Education Savings Plans (“RESPs”). This week, I wanted to touch on some additional issues regarding estate planning and RESPs.
First, I wanted to note that in the context of an RESP owned by joint subscribers, it will be the Will (or lack of a Will) of the surviving subscriber that will govern the manner in which the RESP is dealt (i.e., will the RESP be continued, will the RESP be wound up, how the RESP should be administered, etc.)
Therefore, it is prudent for joint subscribers (often the parents of minor children) to agree on how the RESP is to be dealt with on the second of their deaths and have mirror RESP clauses in both of their Wills. Without a contract between them, however, the surviving subscriber is free to change his or her Will and/or deal with the RESP upon the death of the first subscriber in such manner as he or she wishes.
Second, parents of minor children may want to ensure that the trustees of testamentary trusts established for their children have the ability to encroach on the capital of such trusts for the purpose of subscribing to a RESP. If this is the case, a specific direction should be included in each of the parents’ Wills to this effect. Without such a specific direction, the trustees of the minor children’s trusts may encounter difficulties. If the subscription to the RESP involves the transfer by the trustee of property held for the minor to himself or herself, a breach of trust could be found, and even if the trustee were to hold the RESP in trust for the minor child, the investment of trust property in the RESP might not be considered to be a prudent investment for the purposes of applicable trust legislation. Therefore, parents who want to ensure that the trustees of their children’s trusts are able to subscribe for RESPs should provide specific direction to that effect in their Wills.
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