Can money left in a will to be held in a trust for a child under 18 be deposited into an RESP?
—Paula
Using a trust to contribute to an RESP
A registered education savings plan (RESP) is a tax-advantaged way to save for a child’s post-secondary education. Contributions attract a Canada Education Savings Grant (CESG) of 20% on up to $2,500 of contributions per year, and low-income families may also qualify for the Canada Learning Bond or other provincial incentives.
You can direct in your will how your estate should be divided among adult and minor beneficiaries. When assets are left to minors, they are typically held in trust until the minor reaches the age of majority, though trustees can be instructed to hold or distribute funds beyond that age or to pay proceeds out over time to adult beneficiaries.
Wills commonly include discretionary trust language that gives trustees flexibility in managing funds for minor children. For example, a clause might read:
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.
That kind of wording permits trustees to use trust assets to support a beneficiary’s education or other needs, but it does not necessarily mean the trust itself can open or own an RESP.
Who can open and own an RESP account?
Before planning to use a testamentary trust to fund an RESP, it helps to understand how RESP ownership works and the legal limits on who can be a subscriber. Two important constraints often prevent a trust from directly opening an RESP:
First, an estate or testamentary trust generally cannot open a new RESP account. Under the Income Tax Act, an estate is treated as a trust, and the RESP rules exclude trusts from being a party to the RESP contract. That means a trust named in a will usually cannot be the RESP account holder.
Second, the RESP subscriber — the person who opens the account — is the legal owner and controls the account. The beneficiary (the child) does not own the RESP and cannot compel withdrawal when they reach the age of majority. The subscriber can withdraw funds and is responsible for the account, subject to RESP rules and any grant repayment requirements.
Because of these rules, a testamentary trust may not be able to open an RESP directly, nor may it be able to contribute trust funds to a third-party-owned RESP if the trust’s terms restrict payments to the beneficiary only or limit their use in prescribed ways.
However, some financial institutions allow a living subscriber to name a successor subscriber who takes over the RESP if the original subscriber dies. In such cases, a testamentary trust could be named as the successor subscriber so that trust funds can continue to be held and managed within the RESP framework.
What role does a trustee play?
A will can direct trustees how to use funds held in trust. For example, a grandparent could specify that trustees should contribute trust assets to an RESP owned by the child’s parent. That approach keeps the RESP in the hands of a living subscriber while ensuring the trust’s funds are used for education.
If the RESP owner dies without designating a successor subscriber, the account may face complications: it could need to be closed, be subject to probate, require repayment of grants and bonds, generate tax consequences, or be distributed under the will’s terms. RESP contracts differ — some permit naming a successor subscriber, some allow an executor to appoint one, and others do not.
Practical steps you can take if you want trust funds to benefit a child’s RESP, Paula:
- If you are the current RESP subscriber, check with the financial institution to see whether you can name a successor subscriber.
- If the institution does not offer that option, consider adding a codicil to your will or preparing a new will that explicitly appoints a successor subscriber for your RESP.
- Consider adding clear directions in your will that require trustees to contribute trust funds to an RESP for the child beneficiary, whether by naming the trust as successor subscriber where allowed or by directing payments to an RESP owned by a designated individual (for example, the child’s parent).
Talk to the lawyer who drafted your will or consult an estate lawyer to ensure your instructions are legally effective and compatible with RESP contract rules at your financial institution.
Contributing more than the RESP grant limit
It’s important to distinguish the government grant limit from contribution limits. The CESG calculation is based on up to $2,500 in contributions per year (which generates up to $500 in CESG). Unused grant room from prior years can be carried forward and claimed later within specified limits.
There is no strict annual limit on the amount you can contribute to an RESP for a beneficiary, but there is a lifetime contribution limit of $50,000 per beneficiary across all RESPs. You can contribute more than $2,500 in a year, but grants will only be paid up to the applicable CESG limits.
One straightforward option, depending on your situation, is to pre-fund the beneficiary’s RESP contributions up to their remaining lifetime limit, or to instruct your executors in your will to do so. That approach can simplify administration and avoid ongoing annual contribution decisions.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell financial products.
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