Tag: RESP

25 Jan

Are Registered Education Savings Plans Different from Trusts?

Kira Domratchev Estate & Trust, Estate Planning, General Interest Tags: , , , , , 0 Comments

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.

Kira Domratchev

Find this blog interesting? Please consider these other related posts:

Registered Education Savings Plans: A Primer

RESPs vs. ITFs – Protecting Children’s Money from Parent’s Creditors

RESPs – Not just an end of year issue

 

23 Jan

Registered Education Savings Plans: A Primer

Kira Domratchev Estate Planning, General Interest Tags: , , , , 0 Comments

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.

Family Plans

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:

  • siblings;
  • 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.

Individual Plans

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.

The Contract

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.

Kira Domratchev

Find this blog interesting? Please consider these other related posts:

RESPs vs. ITFs – Protecting Children’s Money from Parent’s Creditors

RESPs – Not just an end of year issue

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