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investor clinic

I have a family RESP for my five grandchildren, three of whom are almost finished postsecondary school. The two younger ones (from another family) are 10 and 12.

I have more than $50,000 in the plan and want to continue contributions for them, but my concern is that I am 81 and I may be dead before they get to use the money.

Can I transfer the plan to my son, who is the father of these two youngest children? I want to forestall the possibility of me dying and the money in the RESP not being easily accessible until everything is wound up from my estate.

Unfortunately, you are not permitted to transfer a family RESP to your son while you are alive, said Mike Holman, author of The RESP Book: The Simple Guide to Registered Education Savings Plans for Canadians.

However, there are steps you can take now to ensure the RESP will pass to him after you are gone so that your grandchildren will receive the funds as you intended.

To avoid potential problems, he recommends that you include instructions in your will appointing your son as the successor subscriber to the RESP after your death.

The subscriber – currently that's you – makes contributions to the RESP and is also responsible for decisions about investments and withdrawals. Handing that power to him will help to facilitate a smooth transition for the RESP.

"If not specified in the will, there is no guarantee that an RESP will be kept intact or that the resulting money will be directed to the people it was intended for," Mr. Holman said.

Floyd Gradley, an estate and trust lawyer with Mackenzie Investments, said many RESP sole subscribers don't name a successor subscriber in their wills. This oversight can give rise to some unforeseen – and unpleasant – consequences.

"It's becoming an issue because RESPs are getting bigger, and if they're not dealt with properly there could be fights among the various estate beneficiaries," he said.

Because RESP contributions become part of the deceased subscriber's estate and do not legally belong to the RESP's beneficiaries, without a successor subscriber, the executor or administrator may have no other legal option but to collapse the plan and distribute the contributions to the estate's beneficiaries – who may not be the same as the RESP's beneficiaries.

What's more, the termination of the RESP could trigger the loss of Canada Education Savings Grants, which may have to be refunded to the government. There may also be penalties and taxes involved.

But you don't have to redo your will from scratch to name a successor subscriber. Most lawyers store wills electronically, so they can easily prepare and sign a new will with the added clause for a few hundred dollars, he said.

"By appointing a successor subscriber in the will, you're actually making a gift to that person of the RESP contributions," Mr. Gradley said.

There's a second, more complex, way to pass the RESP assets to your son, he said.

This involves setting up a testamentary trust in your will, with your son named as the trustee. Upon your death, the RESP contract would go into the trust, and your son would be bound by the trust's terms, which would stipulate that the trustee is required to use the funds for your grandchildren's education.

Finally, there's a third – and very simple – option that will get at least some RESP assets into your son's hands while you're still alive. Ask your son to open an RESP, with himself as the subscriber and his two children as beneficiaries. You can then direct all future contributions to this RESP instead.

That won't solve the problem of transferring your existing RESP to your son – only your will can do that – but it will take care of money you contribute from now on.