If you pass away without naming a “Successor Subscriber” in your Will, your child’s Registered Education Savings Plan (RESP) will become part of your general estate. It could be cashed out, triggering massive tax penalties and forcing the return of government grants.
Saving for a child’s post-secondary education is a top priority for parents in Ontario. Through a Registered Education Savings Plan (RESP), families in Kingston, London, and Thunder Bay can grow their savings tax-free and benefit from generous Canada Education Savings Grants (CESG). 🎓 However, a massive estate planning blind spot exists for many parents: they assume that if they die, the RESP automatically goes to the child. Legally, this is entirely false.
An RESP does not belong to the child (the beneficiary); it belongs to the person who opened it (the subscriber). If you are the sole subscriber and you pass away without specific instructions in your Last Will and Testament, the RESP forms part of your estate. 📈 Your executor may be legally forced to collapse the account to pay off your debts or distribute cash to your heirs. If an RESP is collapsed, all government grants must be returned to the government, and the accumulated growth is heavily taxed, destroying years of hard-earned educational savings.
Step-by-Step Process to Protect an RESP in Your Will
To keep the RESP alive and growing tax-free after your death, you must explicitly pass control of the account to a trusted individual. Here is the process required in Ontario. 📝
Step 1: Check Your Current Subscriber Status
First, verify how the RESP was opened. If you opened it jointly with your legally married or common-law spouse, the solution is built-in. 🤝 Upon the death of one joint subscriber, the RESP automatically continues under the surviving spouse’s sole control. However, if you are a single parent, divorced, or simply opened it solely in your name, you must address this in your Will immediately.
Step 2: Choose a Successor Subscriber
You need to appoint someone to take over the management of the RESP. This person is called the “Successor Subscriber.” 👱 This should be someone you deeply trust-such as the child’s guardian, a responsible aunt or uncle, or a grandparent. Keep in mind that a successor subscriber has the legal power to manage the funds, and if they are untrustworthy, they could potentially cash it out for themselves.
Step 3: Draft the Specific RESP Clause
You cannot simply say, “I leave my money to my kids.” Your lawyer must draft a specific Successor Subscriber Clause into your Will. 🤖 This clause legally instructs your executor to transfer the RESP contract to the named successor without cashing it out. It strictly binds the successor to maintain the RESP for its original intended purpose-your child’s education.
Step 4: Provide Ongoing Funding Instructions (Optional)
An RESP relies on continuous contributions to maximize government grants. You can include a clause in your Will directing your executor to continue making annual contributions to the RESP out of your estate’s funds until the lifetime maximums are reached. 💸 This ensures your child gets the full benefit of the CESG even after you are gone.
How Much Does it Cost in Ontario?
Adding an RESP protection clause to your Will is a standard part of comprehensive estate planning and adds minimal extra cost. 💲
| Service / Consequence | Estimated Cost (CAD) |
|---|---|
| Comprehensive Will Drafting | $500 to $1,500 |
| Penalty for Collapsed RESP | 100% loss of CESG plus 20% penalty tax on growth |
| Estate Administration Tax (EAT) | 1.5% on the RESP value (if no successor named) |
How Long Does the Process Take?
Protecting the RESP is a quick legal fix with long-lasting benefits. 🕙
- Updating Your Will: Can be completed by an Ontario lawyer in 2 to 4 weeks.
- Post-Death Transfer: Transferring the RESP to the successor subscriber at the bank usually takes 4 to 8 weeks after the Grant of Probate is issued.
- Account Lifespan: An RESP can legally remain open for up to 35 years, giving the child ample time to use it.
Frequently Asked Questions (FAQ)
Can I name my minor child as the Successor Subscriber?
No. A minor child (under 18 in Ontario) does not have the legal capacity to manage financial contracts. You must name a trusted adult to manage the account on their behalf until they require the funds for school.
Does the RESP go through probate?
Generally, yes. If you are the sole subscriber, the value of the RESP must be included in the calculation of your total estate value for the Estate Administration Tax (probate fees). Naming a successor subscriber saves the account from collapse, but it does not bypass the probate tax.
What happens if the child doesn’t go to post-secondary school?
If the beneficiary decides not to attend school, the Successor Subscriber can keep the account open for 35 years. Alternatively, they can transfer the funds to a sibling’s RESP, or roll up to $50,000 of the earned interest into their own RRSP, provided they have the contribution room.
Can my ex-spouse automatically take over the RESP?
No. If you opened the RESP solely in your name after a divorce, your ex-spouse has no legal right to step in as the subscriber when you die, unless you specifically name them as the Successor Subscriber in your Will.
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