Court Imposes a Trust over RESP Funds

A recent court case examined whether funds deposited into four RESP accounts were impressed with a trust in favour of the named beneficiaries.

In 2017, Hugh Grightmire (“Hugh”) transferred $200,000 to purchase four RESPs, $50,000 per great-grandchild beneficiary (the “Applicant”). Tracey-Lee, Hugh’s daughter and great-aunt of the Applicants (the “Respondent”) was named subscriber and managed the RESP funds.  Hugh died in 2023.

When the eldest Applicant started post-secondary education, the Respondent refused to release funds unless her conditions were met.  Similarly, the Respondent also refused to release funds to the second eldest Applicant for post-secondary education expenses.  Later on,  the Respondent closed the two RESPs and transferred the funds to herself.

The Applicants sought a declaration imposing a trust over the RESP funds and repayment of amounts taken from the two closed RESPs. The Respondent asserted legal ownership of the originating funds which permits her to manage or close the RESPs at her discretion.

While RESPs are not automatically impressed with a trust, the funds Hugh deposited in the RESPs (the $200,000 and related grants and growth) created an express trust in favour of the Applicants to fund their post-secondary education as the three certainties: certainty of intention, certainty of subject matter, and certainty of object, applied.

The evidence was clear that the original $200,000.00 was funded by Hugh and not the Respondent/Subscriber.  At the time the funds were gifted, Hugh was managing his assets with assistance from the Respondent but it was clear that the $200,000.00 was a gift from Hugh. Hugh expressed a clear intention to benefit his four great-grandchildren. The $200,000.00 to fund the RESPS is clearly identifiable, establishing certainty of subject matter. The four named beneficiaries make the object certain. As such, an express trust was created.

The Respondent breached her fiduciary duties by closing two RESPs accounts during a dispute with the Applicants and transferring the funds to herself. The Respondent was removed as the subscriber for two remaining RESP accounts and a neutral subscriber appointed. Two new RESPs accounts were to be opened for the two Applicants who had their accounts closed by the Respondent. The Respondent was responsible to repay the principal investment and all realized and potential growth to the date of the court’s decision within 30 days.