When Maggie turned one, her mom was certain she’d become a dancer the way she bounced around whenever she heard music. But, when all she wanted to do was play with Leggo at age three, her dad pegged his daughter as a future architect. Whatever Maggie chose to study, she’d have the funds to pursue it because her mom and dad established a Registered Education Savings Plan (RESP) shortly after she was born.

When Maggie turned ten, tragedy struck when her parents were in a car crash. There were no survivors, including the RESP.

What happens to my child’s RESP if I die? 

Whether the person who established an RESP account is a grandparent, aunt, or family friend, it belongs to them, not the child. In Maggie’s case, her mom and dad both owned the account. If Maggie’s dad had been the only victim of the car crash, the RESP would have gone to the surviving spouse. Maggie’s mom could have kept the fund intact. 

If Maggie’s dad had been the sole owner of the RESP, upon his death, that account would form part of his estate and would be subject to tax on any interest accrued as well as any estate administration costs (probate fees). The remaining balance would be distributed according to the owner’s will, or in the absence of a will, according to applicable legislation. This scenario will play out the same way if both parents own the account and die before Maggie is ready for her post-secondary education.

This is not at all what Maggie’s parents had intended! 

How to safeguard your child’s RESP

Maggie’s parents could have ensured that the RESP stayed intact following their passing by naming a successor subscriber in their wills. In that case, the RESP survives the death of the original owner. It will be exempt from any taxes and fees. 

Choosing who to name as a successor subscriber is a critical decision because that person has the authority to apply the funds as they see fit. They could add new beneficiaries, remove beneficiaries, or collapse the fund entirely and appropriate the funds for their own use. Yikes!

If Maggie’s parents didn’t have a person in their lives they were confident would administer the RESP according to their wishes, they could establish a trust that directed the manner in which the funds are to be used, that is, to satisfy Maggie’s post-secondary education. Also, they could empower the trustee to make ongoing RESP contributions from their estate if they hadn’t made the maximum contributions at the time of death. 

With foresight and planning on her parent’s part, Maggie would have had a much easier time financially pursuing her chosen post-secondary dream, which was to become an astronaut.

Lori Ainemer at Evans Family LawBy Lori Ainemer

If you have questions about this post or collaborative law in general, contact me today at LAinemer@evansfamilylaw.ca