Using a trust to contribute to an RESP
A registered education savings plan (RESP) is a great way to save for post-secondary education. RESP contributions of up to $2,500 per year attract a 20% contribution from the government called a Canada Education Savings Grant (CESG). Low-income families who contribute to an RESP may also qualify for a $500 Canada Learning Bond or other provincial government incentives.
In your will, you can leave instructions to divide your estate among different adult and minor beneficiaries. Assets left to minor beneficiaries are generally held in trust until those beneficiaries attain the age of majority, but trusts can hold funds beyond that age, or they can be used to hold back an estate and distribute it over time to adult beneficiaries.
When you leave money for minor beneficiaries, Paula, you can leave explicit instructions, or those instructions can be more open to interpretation. Many wills include discretionary trust wording like the following, taken directly from an actual will:
My Trustees shall set aside one equal share for each child of mine who shall be living at my death, and shall keep such share invested and the capital and the whole of such part of the net income derived from such share or from the part thereof from time to time remaining in trust as my Trustees in their uncontrolled discretion consider advisable shall be paid to or applied for the benefit of such child, and to educate or advance him or her in life or defray the cost of an accident, illness, or other emergency.
A clause like this gives flexibility to a trustee who is appointed to manage a testamentary trust in a will to use the funds for a beneficiary as they see fit.
Who can open and own an RESP account?
Although it may seem prudent to use a trust to contribute to an RESP for a minor child who is a beneficiary of that trust, it may not be an option. The reason is two-fold.
First, an estate cannot open a new RESP account. According to Canada Revenue Agency, “An estate is defined as a trust under the [Income Tax] Act. The Act’s definition of ESP excludes a trust from being party to the contract.”
Second, the owner of an RESP account is the subscriber, not the beneficiary. So, the person who opens the account owns it and can withdraw the money for any purpose at any time. The child beneficiary cannot demand the money, even once they’ve attained the age of majority. It does not belong to them.
As such, Paula, a testamentary trust may not be able to open an RESP account and may not be able to contribute to an RESP owned by someone else if trust funds can only be paid to the beneficiary or spent on their behalf according to the terms of the trust.
Jason Heath
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