A Registered Education Savings Plan is a way to save money for a future student’s post-secondary education in a way which allows for not only tax-deferral but also for government contributions towards that future student’s (“beneficiary’s”) education proportionate to the contributions made by the “subscriber” of the RESP.
A Registered Education Savings Plan (RESP) is a contract between the subscriber and a promoter (the bank or other financial institution holding the RESP). The subscriber (generally, parents) can contribute to RESPs as much as they want on an annual basis but the total limit for contributions is $50,000.00 per beneficiary – contributions made beyond this limit become taxable. The subscriber is the only one with legal authority to direct withdrawals from the RESP while he or she is alive.
What happens when a subscriber becomes incapable? If the subscriber has a continuing power of attorney for property in place then the appointed attorney may be faced with the question of whether or not to continue contributing towards the RESP. As an initial step, the attorney for property will want to review the contract between the subscriber and promoter, and should also review the terms of the power of attorney itself. The attorney should seek legal advice to assist with this process. If there are no restrictions in the contract and if the RESP is not specifically mentioned in power of attorney, it may be to the attorney’s discretion as to if he or she should continue contributing to the RESP on the incapable person’s behalf. Even if this is the case, the decision to contribute (and how much) would need to be based on the incapable person needs, care and support, as the attorney’s primary concern is to ensure the incapable person’s assets are utilized to satisfy his or her welfare.
How RESPs are dealt with when a subscriber passes away depends on the circumstances. If there are joint subscribers (i.e. if two parents are subscribers of an RESP), then if one person passes away, the other will automatically continue on as the sole subscriber.
The RESP contract between subscriber and promoter will indicate whether or not the plan ends when the subscriber passes away or if the plan can be continued with a successor subscriber. If the plan can be continued, the contract may set out if the subscriber is permitted to name a successor subscriber, if the subscriber’s personal representative can act as the successor subscriber, and may also set out requirements or restrictions on successor subscribers. Most plans will allow for a successor subscriber to be appointed by the subscriber and if so, this can be done by appointing the successor subscriber in the original subscriber’s Will.
On a subscriber’s death, there may be questions around whether the property held in the RESP reverts back to the subscriber’s estate or if it beneficially belongs to the beneficiary of the RESP. Including a specific RESP clause in a subscriber’s Will can be helpful not only for the purpose of naming a successor subscriber, but also for the purpose of creating certainty around how the subscriber intended the RESP to be dealt with on his or her death, which can prevent some confusion, and in the worst-case scenario litigation, from arising later. If you are a subscriber of an RESP, consider reviewing the terms of the contract with the promoter (financial institution) to find out what the terms allow for in succession planning and discuss with your estate planning lawyer how to properly deal with your RESP in your estate planning documents.
By: Karen A. Forhan