What Happens to Your RESP When You Die?
The first important thing to understand is that the RESP you set up belongs to you (and your joint subscriber, if for example you opened it with your spouse). It does not belong to the person you intend it for (beneficiary), which is usually your own child or grandchild.
Secondly, while an RESP can have a named beneficiary, this only means the funds are intended for them when they are eligible to enrol in a post secondary program. It does not mean that if the subscriber should die, the funds get passed on to them.
If you were to die while your RESP still held funds, there are several possible scenarios:
Scenario 1: Joint Subscriber
If you have a joint subscriber, the RESP would cease to be held in your name, but would continue as is, under the joint subscriber’s name. Now it would have a sole subscriber.
Scenario 2: Successor Subscriber
As the sole Subscriber, you can name a Successor Subscriber in your Will for the RESP. That person would take over the RESP as the new Subscriber. Ideally this would be someone who is honest and with whom you trust to ensure the RESP is held for the intended beneficiary. The funds held in the RESP would remain and neither the CESG nor the interest would have to be repaid assuming it meets all required conditions when it is redeemed.
The caveat is that the new Subscriber would own the RESP and could by all rights, collapse it if they wanted to and keep any funds remaining once CESG plus interest were repaid.
Scenario 3: Testamentary Trust
As the sole Subscriber, you can appoint a Testamentary Trust as the Successor Subscriber in your Will. In this scenario, the Trust holds the RESP and the named Trustee must follow the directions described in the terms of the trust. The Trustee is usually the Executor or someone who may have been chosen as the Successor Subscriber. In the scenario, the intended beneficiary would receive the funds when they are eligible.
Scenario 4: RESP is Collapsed
If you were the sole Subscriber and there was no Successor Subscriber named in your will, the RESP would collapse, despite a beneficiary being named. The funds would get rolled into the estate and the CESG amounts plus interest would need to be repaid. The remaining funds would then be subject to probate taxes and would eventually be distributed to the named beneficiaries of your Will. (Not the named beneficiary of the RESP).
Unless you appoint a Successor Subscriber or Testamentary Trust in your Will to ensure the funds within your RESP are distributed to the intended beneficiary, it’s likely the RESP will be collapsed and the intended beneficiary will be left with much less than you intended.
Want to learn more about RESPs and other important estate planning tools? Get in touch! We’re always happy to answer your questions.