On Tuesday, I blogged about Registered Education Savings Plans (“RESPs”), the statute governing their administration, and the difference between Family Plans and Individual Plans.
When people usually hear about RESPs though, they often think that it is some kind of trust. However, that is most likely not the case.
What Are Trusts?
The general structure of a trust under Canadian law is that a settlor gives property to a trustee for the benefit of some third party. In turn, the trustee holds legal title to the property but is bound by fiduciary duties to administer such trust, on behalf of the beneficiary.
To create a trust, under Canadian law, there must be:
1) A certainty of intention;
2) A certainty of subject matter; and
3) A certainty of object.
How are RESPs Different?
In the case of an RESP, as discussed previously, the subscriber keeps title to the property until the beneficiary uses it for his/her post-secondary education. A promoter, which is the financial institution that is administering the RESP, similarly does not take title to the property in the RESP. As such, the property belongs to the subscriber until such time that the beneficiary attends a post-secondary institution, or a successor subscriber is appointed.
How Have the Courts Treated RESPs?
Multiple courts have held that the RESP does not meet the criteria of “certainty of intention”, and as such, it cannot be considered a trust.
The Alberta Court of Queen’s Bench held that a person who filed for bankruptcy was not holding the RESP for the exclusive benefit of her children but, rather, that she could have cancelled the plan at any time (see Payne, Re (2001), ABQB 894, 109 ACWS (3d) 687). This Court further held that since there was no intention to create a fiduciary relationship in the case of an RESP, it did not meet the certainty of intention. The same result was reached by the New Brunswick Court of Queen’s Bench and the Saskatchewan Court of Queen’s Bench (see Vinneau, Re (2007), NBQB 332, 160 ACWS (3d) 939 and MacKinnon v Deloitte & Touche Inc. (2007), SKQB 39, 155 ACWS (3d) 27).
The Ontario Superior Court of Justice has, however, come to a different conclusion. The Court held that the subjective intent at the time of the creation of the RESP could create a trust (see McConnell v McConnell (2015, ONSC 2243, 252 ACWS (3d) 300). This case dealt with a family law dispute and the question arose whether an RESP belonged to the beneficiary child or the subscriber parent. The Court did not consider certain characteristics of an RESP that are not congruent with the finding that it is a trust, such as the fact that a subscriber may collapse the RESP at any time, as well as use it as security for a loan.
As such, it is possible that McConnell v McConnell could be restricted to the facts at hand and assessed in the context of the circumstances that the Court was presented with; namely, whether or not to attribute an asset to the child or the parent, in a divorce proceeding.
Thanks for reading.
Find this blog interesting? Please consider these other related posts:
Registered Education Savings Plans or “RESPs” are education savings accounts registered with the Canada Revenue Agency. RESPs are used by individuals to save for their children’s post-secondary education. Once it is registered, it becomes the repository for education savings incentive payments made on behalf of an eligible beneficiary.
RESPs are a creature of statute and are governed by section 146.1 of the Income Tax Act (the “Act”). An RESP must be terminated by the end of the 35th year, following subscription.
A subscriber of an RESP is the person who makes contributions, and in whose name it is registered. A beneficiary, on the other hand, is a person on whose behalf the subscriber opens the RESP.
There are two types of RESPs that one could subscribe to: a family plan and an individual plan.
Under a family RESP, the subscriber can name one or more children as beneficiaries with the requirement that each beneficiary be related to him or her by blood or adoption.
A “blood relationship” is defined under section 250(2) and (6) of the Act, as a relationship between:
- a child and his/or her parents;
- a child and each set of his or her grandparents; and
- a child and each set of his or her great-grandparents.
An aunt/uncle, niece/nephew or cousins, are not considered related by “blood” under the Act.
A relationship by “adoption” includes both legal adoption and “adoption in fact”. When a beneficiary is legally adopted s/he is considered to be connected to the adoptive parents and both sets of grandparents and great-grandparents. Where, however, a legal adoption has not taken place, an “adoption in fact” may exist. For example, the beneficiary is considered to be the adopted child “in fact” of the common-law relationship, if the spouse provided parental care on a continuing basis.
An aunt/uncle, niece/nephew or cousins, are not considered related by adoption under the Act.
Under an individual plan, only one child can be named as a beneficiary; however, there is no requirement that the beneficiary be related to the subscriber under the Act. In fact, the subscriber can even name himself or herself as a beneficiary under such an RESP.
In addition to the statutory provisions of the Act that deal with RESPs, the contract between the subscriber and the promoter (the organization administering the RESP), can provide additional terms and conditions. It is important to review such terms before choosing the promoter that suits your needs, as the contract can provide further restrictions than the statutory framework of the Act.
Thanks for reading.
Find this blog interesting? Please consider these other related posts:
One of the objectives of our Hull and Hull blogs and podcasts is to contribute to the pool of educational material available on-line.
Recently, I was referred to the Khan Academy, a wonderful website which is also spreading education through the internet on a broad scale. The Khan Academy website uses streaming video to deliver lectures on a wide array of topics.
Founder Salman Khan explains on the website that "With just a computer and a pen-tablet-mouse, one can educate the world!" And Salman Khan does an excellent job of doing just that. The Khan Academy boasts over 1,800 educational, videos. Most of the videos are 10-20 minutes in length. They are conversational in tone, and are illustrated by Sal Khan using his tablet. Mr. Khan does an excellent job of explaining some very difficult topics.
The topics lean heavily towards the maths and sciences, but there are number of discourses on Economics and History, as well.
(Be sure to try out the "Blue Forehead" brain teaser.)
Thank you for reading,
Paul E. Trudelle – Click here for more information on Paul Trudelle.
There are several interesting continuing legal education (CLE) events coming up in September and October 2008 that I wanted to mention as summer draws to a close and we look to the fall.
One is an Ontario Bar Association (OBA) full day program on September 23, 2008 commencing at 9:00 a.m. entitled “Trusts, Trustees, Trusteeships III – All you need to know and more”. This is the third year that this program on Trusts is running. The use of Trusts and Trust drafting are said to be the primary focus of this year’s program.
Topics include: Valuation Issues and Discretionary Trusts, The Effect of Bankruptcy on Estate Planning, Testamentary Trust Planning, The Use of Trusts as a Will Substitute, Charitable Gifts made by a Trust, Trust Variations, Insurance Trusts and Declarations, Judicial Supervision of the Exercise of Trustee Discretionary Powers and Trust Drafting.
As you probably know, Hull and Hull LLP produces two weekly podcasts that discuss issues related to the estates area and estate and succession planning. Podcasting has certainly grown in the last year and there is a lot of content out there. To learn more about our firm’s use of this social medium, read Suzana Popovic-Montag’s and Ian Hull’s blog on podcasting.
Other Canadian legal podcasts include Osler Audio Reports offered by Osler, Hoskin, & Harcourt LLP that discuss a variety of business legal issues. The Canadian Bar Association provides PracticeLink Podcasts offering practice management information to its members. Law is Cool is both a blog and podcast produced by and for Canadian law students. (Podcast Episode No. 8 features an interview with Ian Hull).
Law schools are also providing a tremendous amount of information through the podcasting medium. The University of Ottawa’s Law and Technology Program was one of the first educational institutions to utilize podcasting and make classes available via podcasts. Through podcasts, many American law schools are making special lectures available to the public. Harvard Law School’s Program on Negotiation produces PONcasts offering advice on negotiation skills.
On a slightly different note, BBC Radio 4’s Law in Action is a half hour weekly podcast from the UK that discusses legal issues in the news.
These are just a few of the legal podcast choices out there. Whether it is for education or entertainment purposes, there is a lot of information out there.
Have a nice day,