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Tuesday, April 10, 2018

Deal with RESPs in your will

A lot of my clients own Registered Education Savings Plans (RESPs) for their children or grandchildren. I find that most of them don't really know what will happen to the money they are saving if they happen to pass away before it is paid out for a beneficiary's tuition. Most assume that if they pass away, the money goes to the child or children named. After all, that is what we are used to with other plans such as RRSPs. Clients are usually very surprised when I tell them otherwise!

Anyone who has an RESP set up for a child or grandchild should read this new article by Calgary lawyer Matt Trotta. He explains that the money actually falls back into the estate of the deceased owner. It is not mentioned in his article, but is also true, that all of the funds in the RESP that were the matching contributions from the government must be repaid to the government if the plan collapses, along with any income earned on those matching contributions (math nightmare, anyone?)

The key to preventing that RESP collapse is to name a successor owner of the RESP. As with any time we name someone to handle things for us, we must put our trust in them. Mr. Trotta goes on to mention the pluses and minuses of naming the successor plan owner.

When you're planning your will with your lawyer, make sure you tell him or her if  you own one of these plans so that it can be dealt with.

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