Q: I am the account subscriber for an RESP for a child to whom I am not related by blood. I have been told by the financial institution that the only way to name the child’s father as the subscriber upon my death is through my will, which would be subject to probate. Is that correct? I would have thought that I could name the father as a beneficiary as you can for a TFSA or RRSP.
A: A parent or grandparent would be the most common subscriber for a Registered Education Savings Plan (RESP). But it’s not unheard of for an aunt, uncle, godparent, etc. to open an RESP to save for the education of a special child in their lives. No matter who the beneficiary of an RESP is, it’s important for the subscriber to understand how RESPs factor into their estate planning (or lack thereof).
Even though an RESP is generally opened and intended for a child, grandchild, or, in your case, Wayne, an important child in your life, the RESP is technically yours. The child is simply the beneficiary—or more specifically, the potential beneficiary—of the RESP.
The “beneficiary” in this context doesn’t mean the account goes to them on your death or their parents on your death. So it’s not like an RRSP or TFSA beneficiary. It just means that you can potentially use the money in the account to help pay for their education someday.
The person who opens and owns an RESP is called an RESP “subscriber.” 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 (unless you live in Quebec) and will not be subject to tax or probate.
Presumably, your financial institution does not allow you to name a successor subscriber in your RESP contract, in which case, your financial institution is partially correct. You would need to do so in your will.
In the absence of any planning, when you die, if you are the sole subscriber for an RESP, it will form part of your estate and may be subject to tax and probate fees and distributed based on the terms of your will.
However, you can include a clause in your will to name a successor subscriber, like the child’s father in your case, Wayne. The RESP then carries on after your death under the control of the new subscriber and is exempt from tax and probate. From experience, I can tell you that virtually no will that crosses my desk includes such a clause.
Remember that when you name a successor subscriber, they become the owner of the RESP. 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.
So if you want to be extra sure that an RESP ends up used for your intended beneficiary or beneficiaries, Wayne, you may need to establish a testamentary trust in your will to administer the RESP after your death. You can even stipulate that your estate makes a contribution to the RESP on your death or uses other trust funds to make continued contributions to the RESP.
In summary, your RESP can live on after your death. Whether you have a joint subscriber or not, you should consider a clause in your will to deal with your RESP on your death by appointing a successor subscriber – either a person you trust or a testamentary trust to be administered by a person you trust.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.