Registered Education Savings Plans (RESPs) are financial vehicles designed to help parents, relatives and other people save for a child’s post-secondary education. Specifically, they are a contract between the plan issuer and the subscriber (the person(s) who opened the plan and makes contributions into it for the purpose of saving for a particular child). They arise in the estate planning context when a subscriber provides instructions in their will as to what is to happen to the plan should they die before the contributions are payable for the post-secondary education of the intended beneficiary. As the contract outlines provisions governing the accumulation, payout and termination of the RESP, any will instructions should be made bearing these provisions in mind.
RESPs arise in the estate administration context when trustees (appointed in the trust document whereby a trust is created, which may be a will) and guardians of property (appointed by court order) wish to invest minors’ monies into RESPs. However, given the limitations on investments outlined in an RESP contract and the restrictions as to who can receive RESP benefits, a RESP may not be a wise investment within the meaning of the Trustee Act (Ontario).
The Office of the Children’s Lawyer (“OCL”) is a law office in the Ministry of the Attorney General which delivers programs in the administration of justice on behalf of children under the age of 18 with respect to their personal and property rights. Lawyers within the office represent children in various areas of law including child custody and access disputes, child protection proceedings, estate matters and civil litigation. Trustees and guardians of property are obligated to account to the OCL with respect to their management of minors’ assets. A trustee or guardian of property who invests a minor’s monies into an RESP becomes the subscriber. The OCL’s reported concerns about RESPs include the following:
- If a beneficiary does not attend a post-secondary institution:
- The Canada Education Savings Grant (a 20% grant on every dollar of the first $2500 saved in a child’s RESP each year) is returned to the government. Thus much of the investment growth objective that a trustee or guardian of property is charged with maximizing will effectively be lost.
- Some plans provide that interest on the RESP contributions is lost resulting in a minimal return for the child on the investment.
- In some plans, the subscriber may have the option to designate another child as beneficiary of the plan. Thus, the nature of the RESP vehicle allows the subscriber to make a decision which is obviously detrimental to the interests of the original intended beneficiary.
- The subscriber can withdraw the RESP contributions at any time regardless of whether the beneficiary attends a post-secondary institution and receives RESP benefits or not.
- These RESP contributions can be returned to the subscriber on a tax-free basis and may be rolled over into the subscriber’s RRSP when the benefit should only be going to the child.
- Since the Family Law Act (Ontario) does not contain specific provisions in relation to RESP`s, a RESP may be subject to a division of property calculation on the marriage breakdown of the subscriber.
- A RESP does not meet the definition of trust property under the Bankruptcy and Insolvency Act (Canada) and is, therefore, not creditor-proof. Furthermore, without qualifying as a trust, a RESP may become available to a trustee-in-bankruptcy of a subscriber, who may collapse the plan and claim the after-tax value of contributions and interest earned as property of the bankrupt subscriber. Any government money in the plan is lost on the collapse of the plan.
- On the death of the subscriber, the RESP may be available as an asset of the estate for creditor claims and estate administration taxes; the deceased subscriber may also designate a successor subscriber by will or in the RESP contract which may entitle the successor subscriber to all the rights under the plan as the original subscriber.
This list of concerns is not exhaustive. Essentially, they indicate that minors may not receive maximized and sole benefit from their assets if they are invested in a RESP.
To discuss the implications of investing a minor`s assets in a RESP and estate planning options regarding your existing RESP, please contact Andrea Kelly.
Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.