Illustration by The Globe and Mail. Sources: Getty Images
The beneficiary: At 66, “Laura” from Winnipeg is the self-admitted “bossy big sister” of the family. Her father recently died, leaving his estate to his five children, as well as his 10 grandchildren and six great-grandchildren, who are under the age of 5. Since money-savvy Laura is her father’s executor, making sure those kiddos see their share is this retired fundraiser’s current task. It’s not as simple as it sounds.
The inheritance: Everyone in the family got a little something from from the almost seven-figure estate, including the great-grandkids, who were given $10,000 each with a caveat: “The will says the money must be used for education, but it doesn’t actually specify an RESP,” Laura says. Here’s where things get tricky, since the minor recipients’ parents feel differently about where that money should go. “The problem is, what do we do with the money until the kids turn 18? And how do I ensure that the money is available to them then?”
What she learned: Contrary to what her father was told, grandparents – or great-grandparents, aunts and uncles, family friends or distant relatives – can absolutely open an RESP for a child. The account-opener, called the “subscriber,” only needs the child’s name, address and social insurance number. The subscriber doesn’t require parental consent or even to tell the child’s parents.
As far as she sees it, Laura has a few options here: First, she could open six RESPs for six great-grandchildren and plop in a $10,000 lump sum into each. “I’d be following my dad’s wishes, which is important, but I worry I’d be overcontributing and I wouldn’t be able to take advantage of government grants,” she says. The federal government indeed matches 20 per cent of RESP contributions up to $500 a year, which is why many experts believe a $2,500 annual contribution (or $210 a month) to be the so-called “sweet spot.”
To maximize the grant and keep things simple, Laura could simply give the money to the parents and trust them to deposit $2,500 over the next four years. “I wouldn’t say I don’t trust them to do that, but they all manage money differently and have different risk tolerances,” she says. Some have already expressed a “better” use of the money in the meantime. For the less money-savvy among them, should the roof leak or the dog need surgery or someone need braces, it could be tempting use great-grandpa’s money. “I wouldn’t feel personally responsible,” Laura says of that hypothetical situation, “but I’d be disappointed and I’d have regrets about my choice.”
One more option: “As executor, I could purchase six separate bank-held mutual funds to create income with no risk of principal depreciation.” Taxable income would therefore be in Laura’s name, however, which is a small part of a larger problem. “I’d like the estate to be settled this year,” she says, “and I absolutely do not want to be still dealing with this when I’m my dad’s age.”
How a sibling’s unexpected emergency put an equal inheritance to the test
What she did with it: After consulting with two banks and her estate lawyer, Laura came up with a solution that’s actually a blend of all three. “I’ve decided I’m going to open a joint account with the parent of the great-grandkids and put the $20,000 – because each family has two kids – in there,” she says.
Provided the parent provides a receipt showing they’ve moved $2,500 per kid, per year, into an RESP, Laura plans to be otherwise flexible with how and why the younger generation spends the money. “I decided I can’t and don’t need to be involved in managing someone else’s money for 18 more years,” she says. This way, as joint-account-owner, Laura will be involved for just four more years to make sure the RESP money (plus the annual grant) lands. Then she’ll log out and gracefully step back.
Just as the parents might eventually not approve of their kids’ field of study, should they even pursue one, Laura might not approve of the parents’ choices, and there’s likely nothing either of them can do about it. “I realized I was trying to control everything and everybody,” she says. “But I can’t, just like my dad couldn’t, and I’ll just have to trust everyone to respect their grandfather enough to follow his wishes.” If they don’t, it won’t be for a very long time, and nobody can say this bossy older sister didn’t try her very best.
Some details may be changed to protect the privacy of the person profiled. Have you recently received an inheritance and would like to participate in Inherited? Send us an e-mail.