A Registered Education Savings Plan (“RESP”) is a cost-effective way of saving money for a child’s future post-secondary education. The concept of the RESP raises the question of who actually owns the funds therein. Is it the parent who contributes to the RESP (the “subscriber”) or the child for whom the RESP was created in the first place (the “beneficiary”)? According to Justice Faieta in Labatte v Labatte (“Labatte”), the answer is that the assets in an RESP may belong to the subscriber, except where the RESP is being held in trust for the beneficiary. This, however, begs another question: when might an RESP be held in trust?
In Labatte, the parties had jointly set up an RESP for their two children. After divorcing, both parties continued to make contributions to the RESP. When the eldest child decided to enroll in studies at McGill University, she requested a disbursement from the RESP account to pay for her tuition. The father refused to consent to a release of the funds on the basis that he owned them. Conversely, the mother took the opposite position and maintained that the RESP funds were held in trust for the two children. The mother sought to have the RESP account transferred solely into her name.
The court noted that the mere creation of an RESP does not, in and of itself, establish a valid trust, as RESPs often allow subscribers to change the designated beneficiary of the RESP at any time. Further, subscribers are often entitled to obtain refunds for their contributions. These factors run contrary to the essential elements of a valid trust: a clear intention to create a trust, a clear description of what property is to be held in trust, and a clear description of who ultimately is to receive the trust property (also known as the three certainties).
Of course, the opposite is also true. If a subscriber’s intention is for the RESP to be held in trust (i.e. by signing a trust agreement with respect to the RESP), then the court may find that it is so. In the absence of a written trust agreement, however, one must look to the surrounding circumstances, such as evidence as to what the parties intended and what was agreed to.
In Labatte, Justice Faieta found that the RESP was held in trust for the parties’ two children and granted the mother’s request that the RESP account be transferred solely into her name. The parties had previously signed a Partial Separation Agreement, which stated, in part, the following: “The RESPs maintained by the parties shall be used for the children’s postsecondary education.” In addition to describing the trust property and intended trust beneficiaries, this term evidenced a clear intention by both parties to create a legal obligation that the RESP ultimately be used for the benefit of their children.
For parents who want to set up an RESP and ensure that the proceeds eventually go towards their children’s post-secondary education, it is prudent to commit those intentions to writing, so there is evidence of the desire to have the RESP held in trust.
*This blog was co-written by Joanna Lindenberg and Chris Cook (articling student)