What happens to an RESP for grandchildren when you die?

I am a big fan, Grandma Wanda, of grandparents funding RESP accounts for their grandkids. I think it can be a great way to help your children indirectly, and it might be better than giving unnecessary gifts to your grandkids, especially once they reach a certain age.

My mother—Nana Sue—had an RESP account for my kids. When she died, I was able to take over the account. So, your question is something I have thought about both professionally and personally.

Who can open an RESP?

Anyone can open an RESP account, but typically it’s parents or grandparents who open them for minor beneficiaries. So, you can certainly open an account, Grandma Wanda, for your nine-year-old grandson.

The account holder is called a subscriber. The subscriber needs the social insurance number (SIN) of the beneficiary so that the financial institution where the RESP is held can apply for eligible grants and bonds each year. The SIN is used to track the beneficiary’s eligibility for annual and lifetime grants so that you cannot double up on government support.

Can you have multiple RESP accounts?

As a result, you can have multiple RESP accounts. A parent and a grandparent can each have an account for the same grandchild, for example. Grandparents from both sides of the family might even have accounts for the same grandchildren.

Separated or divorced spouses can have multiple RESPs, or they can divide an existing RESP when they split up. Former spouses can also have joint RESPs at financial institutions that allow it.

When there are multiple RESPs, the subscribers should coordinate to make sure grants are maximized and there are no overcontributions (which are subject to a tax penalty of 1% per month). There is a $50,000 RESP lifetime contribution limit per RESP beneficiary. So, this is one reason to reconsider opening the RESP in your name, Grandma Wanda.

How long can an RESP stay open?

An RESP account can stay open for up to 35 years, though practically speaking, most are closed within 25 years. You can only contribute to an RESP account for 31 years after it is opened, and grants only apply to beneficiaries under the age of 18.

A specified plan for a beneficiary who qualifies for the disability tax credit can stay open until the 40th anniversary of the account opening.

Have you named a successor subscriber?

Some financial institutions allow the subscriber to name a successor subscriber to take over the account upon their death, Grandma Wanda. You should consider this if you open the account in your name. You can also include a clause in your will to appoint a successor subscriber. The most obvious appointee would be your child—your grandson’s mother or father.

If you do not take proper steps to ensure continuity for the RESP account when you die, the account could be at risk of being collapsed, with tax and estate administration costs payable upon your death. The original contributions could be withdrawn tax-free. But the government grants would have to be repaid, and any growth (for example, interest earned on deposits or investments) would be taxable to your estate, along with a 20% penalty tax.

Deciding if you should open an RESP for grandchildren

I like the idea of a grandparent contributing to an RESP, but I think it’s important to think about the long-term implications of a grandparent owning the RESP account themselves. As an alternative, a grandparent could give money to their child to contribute to their grandchild’s RESP.

If a grandparent wants to own the account themselves, they should be sure to coordinate contributions with other RESP account holders to maximize grants and avoid overcontributing. They should appoint successor subscribers if they can, and they should address the account in their will.

My late mother’s RESP account remains separate from my own RESP for my children. In part, that’s so I can tell them Nana is still helping to care for them.

Read more about RESPs:

• RESPs 101: RESP withdrawal rules
• The benefits and flexibility of family RESPs
• When and how to transfer an RESP for grandchildren
• 6 ways Canadians can invest in an RESP on a tight budget

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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