Back to School: Why the RESP Should Be Included in a Will

While many of us set up a Registered Education Savings Plan (RESP) to support a family member’s education and create a lasting legacy, it’s ironic how often the RESP is overlooked in estate planning.

Why Consider Estate Planning for the RESP?

With kids back to school, it’s a timely reminder of the RESP’s benefits:

• Income-splitting — When RESP funds are withdrawn for qualified educational purposes, investment income and grants are typically taxed in the hands of the beneficiary—often in a lower tax bracket.

• Tax-deferred growth — Investments within the RESP grow tax-sheltered until withdrawal.

• Government grants — The Canada Education Savings Grant (CESG) provides up to $7,200 in matching grants per beneficiary.

Yet, these benefits can be lost if the RESP is not addressed in an estate plan. Why? The RESP belongs to the subscriber—the person who sets it up and contributes—not the beneficiary. Many investors assume it works like the Registered Retirement Savings Plan (RRSP), which passes directly to a named beneficiary and bypasses probate at death. RESP assets do not transfer in the same way. The RESP forms part of the estate immediately on the death of the subscriber.

If there is no joint subscriber or no successor subscriber is named in the will, the RESP is typically collapsed. As the assets fall into the deceased subscriber’s estate, this can trigger:

• Tax on accumulated income payments, payable by the estate;

• Repayment of CESGs; and

• Probate fees, if applicable, with assets subject to creditor claims.

As a result, the RESP loses its benefits. It may also disrupt legacy plans if estate beneficiaries are different from the RESP beneficiary.

How to Preserve RESP Benefits

To protect the intent of the RESP:

1. Name a joint subscriber (for spouses/partners or former spouses who are the legal parent of the beneficiary only). The joint subscriber can continue managing the plan.

2. Appoint a successor subscriber in your will. A trusted individual can take over the plan. Keep in mind that the new subscriber would control the plan and could potentially collapse it.

3. Consider a testamentary trust. Under certain conditions, a will can name a trust as the successor subscriber, allowing contributions to continue beyond your death (subject to contribution limits).

By addressing the RESP in your estate planning, you can safeguard its benefits and ensure your legacy supports the intended student.