A Registered Education Savings Plan (RESP) allows you to save for a child’s post-secondary education. You place money in the account, and it grows over time. When your child is ready to attend university, he or she can withdraw the money to help pay for costs.
Who does an RESP belong to?
Even though an RESP is generally opened and intended for a child, grandchild, the RESP belongs to the RESP subscriber. The child is simply the beneficiary of the RESP. In this context, being the ‘beneficiary’ doesn’t mean the account goes to them in the event of your death (unlike an RRSP or TFSA beneficiary). It simply means that the beneficiary can potentially use the money in the account to help pay for their education someday.
Who will inherit your RESP after you die?
RESPs are registered plans that do not provide a form for naming who inherits the maintenance of the plan for the child. Your RESP may have a joint subscriber, like your spouse, or you may be the sole subscriber.
If you have a joint subscriber, the account will pass directly to them on your death and will not be subject to tax or probate. If you are the sole subscriber, the only way to pass on the RESP is to name a Successor Subscriber in a will (not your RESP contract).
In certain cases, if the owner of an RESP dies and a Successor Subscriber has not been named to assume ownership of the RESP, the plan may have to be collapsed and the grant money will be returned to the government. The estate would also be obligated to pay tax on the earnings in the plan even though they would not have access to the funds.
To avoid any additional charges to your estate after you pass, you may choose to include a clause in your will outlining your who will inherit your RESP and its responsibilities. By including a clause in your will to name a Successor Subscriber, the RESP then carries on after your death under the control of the new subscriber and is exempt from tax and probate.
Remember that when you name a Successor Subscriber, they become the owner of the RESP upon your passing. It may be intended for the beneficiary (or beneficiaries) of the plan, but the new Successor Subscriber can decide what to do with the RESP. Specifically, they may be able to add new beneficiaries and use the money for them, or they always have the opportunity to collapse the account and use the money for themselves.
If you’re a client, contact your advisor and let them know about your saving goals and RESP needs. If you want to learn more about working with us for financial planning as your children and grandchildren prepare to leave for university and college, contact us.
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