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Monday, November 8, 2010

The mysterious world of RESPs revealed

In this article from the Globe and Mail, the author describes what he calls seven of the trickiest aspects of RESPs. I think there are actually 8, if you bring estate planning into the picture. This is minimally touched on in tricky aspect #6, where he says that students have no control over the RESP and mentions that the beneficiary has no claim on them.

This is true, and it catches many RESP owners by surprise. We are used to certain plans that name beneficiaries, such as RRSPs and RRIFs, and we know that should we pass away the beneficiary we have named is going to get the money. We think that it works the same for RESPs. We are completely wrong about that.

If you own an RESP and have named your child as the beneficiary, then die before your child has used the money, your child doesn't have any claim to the money. If there is another owner of the RESP (say you and your spouse owned it together) then that owner could carry on with the plan uninterrupted. But what if there is no other owner of the RESP and your will doesn't appoint one? In that case, the RESP will collapse, the money you've put into the plan will fall back into your estate and all government contributions will have to be repaid. Probably not what you had in mind.

To avoid this, make sure your Will specifically names someone to be the owner ("director") of the RESP on your death.

To read the Globe and Mail article, click here.

1 comment:

  1. Hi, as beneficiaries we are being asked to sign a “release and consent” form for the second distribution, which waives any further requirement for the executor to pass on her accounts for the final holdback (25% of net proceeds). Is this standard practice?


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