How RESP’s Fit into Your Estate Plan

What You Need to Know

The Problem
RESP’s are investment contracts that are between the individual opening it (the subscriber) and a financial institution. Therefore, when the subscriber dies the RESP becomes part of his/her estate. Beneficiaries of the estate will likely want to maximize their inheritance and it is quite common for the executor to collapse the RESP and distribute the funds to the estate’s beneficiaries. Since RESP’s are set up for post-secondary education purposes, this is likely contrary to what the subscriber would wish.

The Solutions

Joint subscriber
The simplest solution to this problem is to open the RESP with a joint subscriber such as a spouse or relative. This way, when you die, the contract will carry on with a joint subscriber as the sole owner. However, there are some potential pitfalls that should be noted. Firstly, the joint subscriber may collapse the plan when the other subscriber dies and simply take the funds for themselves. Secondly, if the joint subscriber dies after the plans have been used then not much has been solved.

Name a successor subscriber in your willThis way, not matter whether there is one subscriber or two, when the subscriber (s) die they have named a replacement subscriber who can take over the management of the RESP. This strategy works exceptionally well as long as the person who is named as successor can be trusted to keep the RESP in force. Otherwise, as the new subscriber, they could collapse the plan and take the funds out for themselves.

A testamentary trust
This way, not matter whether there is one subscriber or two, when the subscriber (s) die they have named a replacement subscriber who can take over the management of the RESP. This strategy works exceptionally well as long as the person who is named as successor can be trusted to keep the RESP in force. Otherwise, as the new subscriber, they could collapse the plan and take the funds out for themselves.

Bottom Line
Consider making any RESP’s that you may subscribe to as part of your estate plan to avoid its collapse upon your death. No matter which option you choose, it is always recommended you work with a financial and legal professional to make sure your last wishes are fulfilled.