How to protect family RESPs from being raided


Q. I am a grandparent providing funds for a family RESP. It is for twin grandsons—my son is the father. I have a bit of a concern their mother may decide to withdraw the funds I provided for her own purposes. Is there a mechanism whereby both parents have to sign off if the contributed funds were to be withdrawn and not used for the children’s education?
–Morley

A. Hi, Morley. Contributing to a RESP is a fantastic way to help both your grandsons and your son.  Having just helped two children through university myself, I often suggest that you’re going to pay anyway, so why not start a RESP and collect some government grant money along the way?

Your concern about your grandchildren’s mother walking off with the money is, I hope, a very low risk, but one that I know is real. Fortunately, there are a couple of easy solutions that should put your mind at ease.

The key to the solution revolves around the subscriber.  Is the subscriber of the family RESP:

  1. Your son and the boys’ mother;
  2. Only your son; or
  3. You?

Let’s do a quick review of the term “subscriber” and the implications of different subscriber relationships. Then you will see your solution.

In simple terms, the subscriber is the person (or persons) who set up the RESP and named the beneficiaries, your grandchildren. The subscriber is also the one to sign the order ticket to make a RESP withdrawal.

I’m guessing that your son and your grandsons’ mother are joint subscribers, and you’re giving them money each year to contribute to their family RESP. This is very common, as one RESP per family makes tracking the total available grant and contribution amounts relatively easy.

In that case, joint subscribers both need to sign for RESP withdrawals, which solves your concern. An issue could arise if your son passes away unexpectedly and your grandsons’ mother becomes the sole subscriber.

Note that if your son and the boys’ mother have divorced, they can elect to have one of them removed as a subscriber. They should consult with their lawyer.

If your son is the only subscriber, then you have nothing to worry about, because he is the only one who can make withdrawals. He could name you as a successor subscriber through his will, in the unlikely event that he passes away. This would prevent the boys’ mother from taking over the plan.

Finally, you could set up an RESP yourself for your grandchildren, with you as the subscriber and the only one who could make withdrawals. If you name your son as the successor subscriber through your will, he will have ownership of the plan should you pass away before your grandsons complete their post-secondary education.

One negative to you starting your own RESP for your grandchildren is that it can be a pain to track contributions and grants. Imagine if you have a plan, your son and the boys’ mother have a plan, and her parents have a plan.

Morley, as I mentioned at the beginning, the key to the solution you seek is the subscriber. If you feel an unsanctioned withdrawal is real risk, it may be best to start a new plan that doesn’t include your grandsons’ mother as a subscriber.

Allan Norman is a Certified Financial Planner with Atlantis Financial Inc. and can be reached at www.atlantisfinancial.ca or alnorman@atlantisfinancial.ca

This commentary is provided as a general source of information and is intended for Canadian residents only. Allan offers financial planning and insurance services through Atlantis Financial Inc.

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