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R-E-S-P, etc. (Just a Little Bit)
Matthew Harmes
Matthew Harmes

Rounding out the first month of another school year gets me thinking: first, I should have been a teacher (just kidding, I love you guys –heck, I married one); second, post-secondary education is really expensive and costs are only increasing. Son Henry currently fluctuates between being an astronaut or an animated car driving dog from Paw Patrol when he grows up; either way, I figure it’s going to be pricey. A registered educational savings plan (RESP) is a handy device for parents and even grandparents to save for a child’s education.The benefits are clear: tax deferral on income earned while funds remain in the plan; the ability to have that income tax in the hands of the student when funds are withdrawn; and Canada Education Savings Grants, which provide certain percentages, annually, on dollar invested (typically, up to $500 annually). Grandparents, in particular, might want to weigh these benefits, against a simple cash gift to a grandchild under their wills. What happens to the RESP you set up for a child or grandchild when you die? Well, first, what doesn’t happen: unlike an RRSPs or Tax Free Savings Account or insurance proceeds, the RESP doesn’t necessarily flow to the beneficiary as a result of death. If you haven’t properly addressed the RESP, either in your Will or the investment contract and related documents, then the RESP is likely going to be an estate asset, which means (1) it may increase the probate fees payable by your estate; (2) it’s available to satisfy estate creditors; (3) government grants are lost; (4) the estate will have to pay income tax on the funds and there may even be tax penalties that result. Ultimately, the RESP may not be available to benefit the person who you original set it up for; at least not easily. So, it’s important to consider holding the RESP jointly and to designate a successor subscriber. If held jointly (e.g., with a spouse or with the other parent/grandparent) then on the death of one subscriber the plan passes, by right of survivorship, to the survivor. The survivor continues the contributions and the plan is preserved. You should appoint a successor subscriber, someone who is designated to continue the plan after your death (or upon the death of the surviving joint subscriber). You can designate a successor under your will or, in some cases, through the underlying investment contract. If you want to get an A+ on your estate plan, make sure you address any RESPs and unique investment assets with your professional advisors.