Deciding when to collapse an RESP depends on the individual circumstances.daoleduc/iStockPhoto / Getty Images
Good morning and TGIF. This week, Globe Advisor continued our registered education savings plan (RESP) coverage with a closer look at how to best include these accounts in estate plans. Rudy Mezzetta gets into the nitty-gritty of what happens to RESPs should the subscriber (the person who opened the account and contributes funds) pass away.
“If a subscriber doesn’t include a provision for a successor subscriber in the will, or dies without a will, there’s a good chance that RESP is going to have to be collapsed,” the article states.
Collapsing RESPs can happen for other reasons, too. For example, it may occur if the beneficiary has no schooling plan and no siblings who would benefit from the funds. Advisors say delaying the RESP collapse is an option as the account doesn’t have to be wound up until the end of the beneficiary’s 35th year.
But sometimes, more tragic situations manifest. Travis Koivula, chartered financial analyst at Island Savings Wealth Management in Victoria, collapsed an RESP for a client whose only son passed away.
“The grant money went back to the government; [the client] received the principal tax-free and the growth was contributed to their RRSP for the year,” he says.
He notes that the collapsing process was relatively smooth. The clients produced a death certificate and filled out some paperwork.
Mr. Koivula also closed an RESP for a client who needed money to fund schooling that was not RESP-eligible.
“They lost the grant in proportion to what they took out,” he says. “They didn’t have taxable income, though, as they took out principal only.”
John Baynham, president and certified financial planner at Retirement Income Group in Oakville, Ont., had a client who was drafted to the National Football League and didn’t end up going to school.
He concurred that the wind-up process was not complicated.
“We just needed to notify [the provider] that the account was closing," he says.
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