RESP Warfare – Reader Question

by Mike Holman

Recently Michael James wrote about the possibility of using an RESP account as a financial weapon.

Michael suggested that a fiendish person could open up an RESP account for his enemies’ kids, maximize the annual contributions and prevent the parents from receiving any RESP grants in their own RESP accounts.

I didn’t think this would be a likely scenario, since it’s a rather expensive way to “get someone”.  Plus, the evil neighbour would need the child’s SIN in order to set up the RESP account.

But then, last week, Rob left the following comment:

I have provided my parents with my 3 children sin# and birth certificate to open up resp for them.

They have opened up three resp for them.

My concern is that we no longer get along and i dont be believe they will give the cesg money to the kids when they eventually start college.

In the meantime i have opened up a family resp plan for them. I need the cesg space to maximize my contributions every year.

I am worried that my parents are using up all the cesg grant room with their contributions that my kids may never see. I have no idea how much they are contributing at this time if anything. What can i do about this?

Unfortunately, there isn’t anything Rob can do to prevent the grandparents from continuing to contribute to the RESP accounts they have set up.

He also asks if it is possible to find out if anyone else is contributing to an RESP which has your child as a beneficiary.  Yes, there is.  You can call the HRSDC Resp phone line at 1-888-276-3624 and ask for all the grant and contribution information regarding your child.  This should allow you to figure out if other people are contributing for your child.

Another idea for Rob is to make his contributions at the beginning of the year.  If a child has $2,500 of grant-eligible contribution room in a year, then the first $2,500 of contributions will get the grants.  Any further contributions that year will not get any grants.  Assuming the grandparents aren’t following the same strategy, Rob’s contributions should get the grants.

Conclusion

Rob, suck it up and call your parents.  Patch things up so that you can get this RESP problem fixed and so your grandkids can spend time with their grandparents.  They won’t be around forever.

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{ 8 comments… read them below or add one }

1 Mark

The above is not entirely correct. I spoke with TD a few weeks back and they told me that when transferring money from an RESP the gains and the grant money can only be transferred to the account, which belongs to the child. While the contributions can only be transferred to those, who contributed the money. TD would not do it any other way.
So the kids will not lose their grant money nor will they lose any gains earned in the plan.

2 Rachelle

That’s truly evil….

Kind of reminds me when I go to the bank and you need to provide ID to put money into other people’s accounts (sometimes I have to deposit into Landlord’s accounts) I’ve told my bank I am perfectly willing to accept the consequences of random strangers depositing money into my account. Even thought I’ve waived these requirements no has taken up the challenge to harm me in this way…. 🙁

3 Annbanan

Yes, Mark is right that upon redemption the grant money must be paid to the beneficiary….if in the future the RESP will be redeemed for non-education purposes (ie. the beneficiary is not going to school), the grant money will be re-paid to the government. SO, unless someone is very very cunning, I don’t know how they could get grant money that must go by cheque made payable to the beneficiary or direct to the beneficiary’s bank account. I work for an investment firm that has very strict controls on this sort of thing…and you have the government involved as well….

4 Michael James

Thanks for the mention, Mike. I agree with other commenters that the “evil” RESP contributor could not get grant money. However, this person could just make a single $50k contribution and never even apply for grant money. The evil person gets tax-free growth for a few decades and then pays extra tax at the end. All the while the child’s parents can’t make any RESP contributions at all.

5 Mike Holman

@Mark @Annbanan

If someone was really doing this evil plan, there would be no EAP (educational assistance payments).  The evil subscriber would max out the CESG for the beneficiary and then just collapse the RESP. 

You are correct that EAPs have to be given out to the beneficiary.  I doubt every financial institution enforces this however.

For the record, I don’t agree with paying EAP to beneficiaries only – what if Mom & Dad pay the tuition/book/residence/meal plan up front and then ask for an EAP to help pay off their credit card bill?

6 Mike Holman

@Michael – Yes, contributing $50k at the beginning would be the most effective way to implement this plan.

7 Andrea Schmitz

Ok, I have another question: Can a non-resident (but Canadian citizen) open RESP for her children (who also presently do not reside in Canada)?

I assume from the article that the children need their own SIN — so perhaps the next question is truly beyond this post, but can non-resident children get SINs?

(Wondering if your book would be interesting for the expat?)

8 Mike Holman

@Andrea – No.

Expats shouldn’t bother with RESPs or the book.

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