PSA for Grandparents with RESPs

Grandparents: If you’ve opened an RESP for your grandkids, Aravind says don’t skip this crucial estate planning step.

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 So grandparents who open an RESP your kid, for your grandkids, make sure you get your will updated to add a successor subscriber for the RESP. Someone to take over in case you die.

The RESP is a little unique.

And I think Dave, we had talked about grandparents and RESPs. You want me to go through that one?

Yeah, that’s cool. I like that one. Go ahead.

The RESP is a little different because when we talk about RESP beneficiaries, we’re actually talking about the kids who will use that money to go to school, but that’s not necessarily who you’ve left as a beneficiary in your will.

So, what happens with an RESP is if you in, in your estate, and if you don’t plan for it properly, the government treats it as you’ve sold and liquidated the RESP to give to your heirs. What the default interpretation will mean is that you have broken open the RESP, taken all of those contributions out, and as a result of taking those contributions out, the grants have to go back to the government and then the growth can potentially have a penalty interest as well.

A steep one. Yes, 20% on top of that tax rate. So again, if we think about the estate and all those pieces, this becomes very complicated. What I will say is, again, there are ways around that. If you’re joint with a spouse, then they can preserve the RESP. If you’ve left in your will that you want someone to take over as what is called the successor subscriber, then the executor can essentially, you know, sign the papers for the administration of the RESP to pass over.

Where I see this get missed a lot. And Dave, I know you talked about grandparents helping fund their kids RESPs for the grandkids. I do see some grandparents who say I wanna make sure the grandkids are taken care of.

So, you know what? I’m gonna open the RESP. I will take care of it. And I think it comes from a well-intentioned place. But, they do that and then they never go and change their will and

they’re more likely to die, obviously in a relevant timeframe. Yeah.

So grandparents who open an RESP your kid, for your grandkids, make sure you get your will updated to add a successor subscriber for the RESP. Someone to take over in case you die.

We’re gonna put this out as a clip. You are doing a great job on this because you know what a geeky guy I am. I’ve never really thought this through to that extent, and it is very important advice. And to your point, I mean, I know this sounds basic, but the grandparent is often likely to die, right when the child is still not at the post-secondary.

This is great advice. Very important.