Wealth Transfer Strategy 10
The introduction of the Manulife Segregated Fund Registered Education Savings Plan (RESP)¹ created a new opportunity to help fund a child’s post-secondary education. In addition to the unique protective features that a Manulife Segregated Fund RESP offers, including death benefit and maturity guarantees, there’s an additional unique benefit now available.
Naming a successor subscriber in a will
Traditionally, if a subscriber wants to make arrangements for the contract to continue in the event of their death, they could appoint a successor subscriber through provisions in their will. On the death of the subscriber, or the last surviving subscriber in the case of a joint subscriber plan, the registered education savings plan (RESP) becomes an asset of the deceased subscriber’s estate and is subject to the terms of their will. It’s important to note that with a mutual fund RESP, you can’t name a successor subscriber as part of the plan. So, depending on what direction, if any, is provided in your will, the estate may be in a position that it must withdraw the contributions and distribute them to the estate heirs (any government grants and incentives would have to be repaid), or the estate may be directed to appoint a new subscriber for the plan. Nonetheless, the failure to have your will properly updated may lead to unintended consequences with respect to your RESP investment.
Joint subscriber option
An individual and their spouse² may be joint subscribers of a Manulife Segregated Fund RESP.³ Where there are joint subscribers, in the event that one of the subscribers passes away, the surviving spouse will become the sole subscriber and the Manulife Segregated Fund RESP will continue.4 In the event that the sole surviving subscriber passes away, the Manulife Segregated Fund RESP will become a part of the deceased’s estate unless a successor subscriber is named.5
Designation of a successor subscriber with a Manulife Segregated Fund RESP
Subject to any policy restrictions, you may appoint a successor subscriber as a part of a Manulife Segregated Fund RESP6 by completing the RESP Successor Subscriber Contract Amendment form.7 This option applies to both individual and family RESP plans. By naming a successor subscriber, on the death of the last surviving of the subscribers, the contract will continue and the appointed successor subscriber will become the subscriber and annuitant. A death benefit won’t be paid until the death of the subscribers and the successor subscriber.8
Advantages of naming a successor subscriber with a Manulife Segregated Fund RESP
There are some distinct advantages of naming a successor subscriber with a Manulife Segregated Fund RESP using the RESP Successor Subscriber Contract Amendment form:
- Bypass the estate – By appointing a successor subscriber as a part of a Manulife Segregated Fund RESP, an individual will automatically become the new subscriber under the plan should the original subscribers pass away. The value of the RESP contract won’t form part of the deceased’s estate and will pass quickly and privately9 to the successor subscriber without legal, estate administration, or probate fees.
- Contract continuation – By designating a successor subscriber, you can make sure that the RESP contract continues without disruption while maintaining the contractual benefits. Furthermore, any accumulated investment income and government grants and incentives will remain intact.
- Minimize administration – Naming a successor subscriber directly on the RESP contract reduces the administrative burden on the legal representative of your estate.
Designating a successor subscriber on your Manulife Segregated Fund RESP is best suited for those:
- looking to have their Manulife Segregated Fund RESP continue after their death
- who want to minimize legal, estate administration, or probate fees while reducing the administrative burden on their estate’s legal representative.
Take advantage of the successor subscriber Manulife Segregated Fund RESP option:
- Complete the RESP Successor Subscriber Contract Amendment form (advisor login required).
1 All references to the Manulife segregated fund RESP refer to the Manulife Segregated Fund Education Savings Plan (ESP) Contract. 2 The term spouse includes common-law partner as defined by the Income Tax Act (Canada). 3 A joint subscriber must be the spouse of the subscriber at the time in which the contract is entered. In the case of separation or divorce, the Income Tax Act (Canada) doesn’t require the assets held in an RESP to be divided between the parties. Consequently, a spouse and former spouse can continue to be joint subscribers of an RESP. However, individuals who are already divorced wouldn’t be permitted to enter into a contract. 4 In Quebec, on the death of either subscriber, the subscriber’s share will pass to the estate. 5 See Tax Managed Strategy #9: RESPs — No Longer Just for Kids (MK1688), which speaks to a strategy that uses the joint subscriber option to split income if the RESP beneficiary decides not to attend a post-secondary institution. 6 In Quebec, the successor subscriber option is only available on single subscriber plans. 7 Completing this form will cancel and replace all prior successor subscriber designations. 8 In a case where the successor subscriber predeceases the subscribers, the death benefit will be paid to the contract beneficiary on the death of the last surviving subscriber. 9 In Saskatchewan, jointly held property and insurance policies with a named beneficiary are included on the application for probate despite the fact that these assets don’t flow through the estate and aren’t subject to probate.
The commentary in this publication is for general information only and should not be considered investment or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. Any amount that is allocated to a segregated fund is invested at the risk of the contractholder and may increase or decrease in value. The Manufacturers Life Insurance Company is the issuer of the Manulife Segregated Fund Education Savings Plan insurance contract and the guarantor of any guarantee provisions therein. Manulife, Manulife Investment Management, the Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.