RESP Estate Planning: How to Protect Education Savings and Avoid Future Legal Disputes
As another school year begins, it’s a good time to revisit the details and responsibilities involved in managing a Registered Education Savings Plan (RESP). While RESPs are widely used to fund a child’s post-secondary education, few subscribers consider the estate implications if they die before the RESP is fully distributed. This article focuses on RESP estate planning, including how RESPs work, eligibility criteria, how they differ from other registered assets, and how to ensure your education savings are distributed as intended after death.
What Is an RESP and How Does It Work?
Key Features of RESPs
An RESP is a registered savings account designed to help Canadians save for a beneficiary’s post-secondary education. The subscriber (usually a parent or grandparent) makes contributions, which are often matched by government grants, such as the Canada Education Savings Grant (CESG).
- Tax-deferred growth: Earnings within the RESP are not taxed until withdrawn.
- CESG benefits: The government contributes 20% annually on contributions, up to $500/year and $7,200 lifetime per beneficiary.
- Contribution limit: Lifetime maximum of $50,000 per beneficiary, not including grants.
Eligibility and Use of RESP Funds
Who Can Receive RESP Funds?
To qualify for educational assistance payments (EAPs), a beneficiary must be enrolled in an eligible post-secondary institution or program. If they are not enrolled, accessing RESP funds becomes more complex, and in some cases, CESG grants must be returned.
RESP Estate Planning: Why It Matters
RESPs and Death of the Subscriber
Unlike RRSPs or RRIFs, RESPs do not allow the designation of a beneficiary who automatically receives the account on death. Instead, RESP assets may become part of the deceased’s estate, unless specific planning steps are taken.
| Registered Asset | Beneficiary Designation | Estate Inclusion |
|---|---|---|
| RRSP/RRIF | Yes | No (if a beneficiary is named) |
| RESP | No | Yes (unless a successor is appointed) |
That means your RESP may not automatically go to your child or grandchild unless proper RESP estate planning steps are taken.
Best Practices for RESP Estate Planning
1. Appoint a Successor Subscriber
Many RESP agreements allow the subscriber to name a successor who will assume control upon death. This can be done through:
- The RESP contract (with your financial institution)
- Your will (with proper legal language)
2. Clarify Intent in Your Will
Explicitly referencing the RESP and naming a successor subscriber in your will reduces ambiguity and ensures continuity.
3. Avoid Family Disputes
If no successor is named, the RESP forms part of the estate, and surviving family members may litigate over the funds. Court battles can be avoided through proactive planning.
RESPs vs Other Registered Plans
Important Legal Distinctions
Unlike RRSPs and TFSAs, an RESP is not a trust in favour of the beneficiary. The beneficiary has no guaranteed legal claim to the RESP unless eligibility criteria are met. The RESP belongs to the subscriber, and after their death, without a successor, it may be distributed as part of the general estate.
FAQs About RESP Estate Planning
1. Can I name a beneficiary for my RESP like an RRSP?
No. RESPs don’t allow direct beneficiary designations for death purposes. You must appoint a successor subscriber to control the RESP after your death.
2. What happens to the RESP if my child doesn’t go to college?
You may withdraw your contributions and some earnings, but any unused CESG amounts must be returned to the government.
3. Can I include my RESP in my will?
Yes, and you should. Properly referencing the RESP and appointing a successor can prevent disputes and ensure continued usage for education.
4. Is an RESP part of my taxable estate?
While RESP assets are not taxed at death like RRSPs, they do form part of your estate unless a successor is designated.
5. Can grandparents open an RESP and plan for succession?
Yes. Grandparents can open RESPs for grandchildren and should also include RESP provisions in their wills or appoint successor subscribers.
Conclusion
RESP estate planning is often overlooked but is vital to protecting your children’s or grandchildren’s education savings. By clearly appointing a successor subscriber and referencing your RESP in your will, you ensure that the funds are used as intended and that your family avoids unnecessary legal disputes. Like any estate planning tool, the RESP requires thought, care, and legal guidance to align your education goals with your long-term legacy.
