Registered Education Savings Plans (RESPs) are tax-deferred education savings vehicles designed to assist parents (or other family members and friends) to save towards a beneficiary’s post-secondary education.  A contract is entered into between a subscriber (i.e., parents) and a promoter (i.e., bank or trust company), whereby the subscriber contributes funds for one or more beneficiaries, and the promoter manages and invests the contributions.

There are specific requirements under the Income Tax Act[1] and set out in government publications about the intricacies of RESPs, such as who can be a subscriber, promoter and beneficiary; the types of plans that can be arranged; when contributions can be made; the maximum amount that can be contributed for a beneficiary; the types of investments that can be made; the types of payments that can be made out of a plan; and when a plan must be terminated.

“The only amounts that can be paid into a RESP are contributions made by a subscriber and grants and incentives offered by the federal government.  The lifetime limit on the amounts that can be contributed to all RESPs for a beneficiary is $50,000.”[2]  For family plans, contributions must cease upon the earlier of: (a) the date the youngest living beneficiary attains the age of 31; and (b) the 31^st anniversary of the date the plan established.  The government pays a Canada education savings grant on contributions made to all RESPs in respect of each qualifying beneficiary.

Payments out of a RESP include, among others, educational assistance payments (EAPs), accumulated income payments (AIPs), refund of contributions made into the plan and payments to a designated educational institution in Canada.[3]  An educational assistance payment is any payment made to a beneficiary for his/her post-secondary education, which includes the RESP’s accumulated investment earnings, Canada education savings grant and Canada learning bond (if applicable).  Accumulated income payments are amounts of the income earned from a RESP and can only be paid to a subscriber so long as he/she meets certain criteria.  Subject to the contractual agreement of the RESP, a refund of all or part of the contributions can be paid to the subscriber.  A RESP may provide that, if an amount is left in the plan and the conditions for a EAP or AIP are not met, the amount leftover can be paid to a Canadian designated educational institution.  No donation receipt is issued for such a payment, because the donation is not considered to be made by the subscriber.

What happens when the original subscriber of a RESP dies depends on the terms of the contract and the terms of the subscriber’s Will.  The original subscriber should consider whether they wish the plan to be continued for the benefit of the beneficiaries, or have the plan terminated on death.  The original subscriber of a RESP can name a successor subscriber in his/her Will and provide directions to the successor subscriber.  Upon the death of the original subscriber, the successor subscriber acquires the rights under the RESP which belonged to the original subscriber.  The Canada Revenue Agency considers the successor subscriber to have made all of the contributions to the plan.[4]  Accordingly, subject to the terms and conditions of the RESP, when the plan terminates, the successor subscriber can receive the refund of contributions and accumulated income payments.  Since contributions made to the plan are not tax deductible, they can be returned to the subscriber at any time without tax consequences. Any accumulated income payments paid to the successor subscriber are included in his/her income and subject to an additional 20% tax.  Any remaining Canada education savings grant money is returned to the government.

Although quite common and very useful, RESPs are complex and there are many rules to be aware of.  When thinking about your estate plan, RESPs are an important asset to consider.

[1] Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.).

[2] Government Publications — Information Circulars, Information Circular, 93-3R2 — Registered Education Savings Plans at Part II.

[3] Ibid at Part III.

[4] Government Publications — Registered Plans Publications — Registered Plans Frequently Asked Questions, RPFAQ-3 — Registered Education Savings Plans (RESPs)—Frequently Asked Questions, February 9, 2011, para 3(c).