Court orders return of RESP money

A woman who was managing RESPs for four great-nieces and great-nephews breached her fiduciary duty as a trustee when she placed unreasonable conditions on their access to the funds, and later closed a couple of the plans and took the money for herself, an Ontario court found.

The Ontario Superior Court of Justice largely granted a motion brought by four of the great-grandchildren of Hugh Grightmire, seeking the removal of their great-aunt from their RESPs, and the return of the money from two of the accounts that she closed.

According to the court’s decision, in 2017, Grightmire (who died in 2023) used $200,000 to fund RESPs for four of his great-grandchildren — $50,000 each. One of his daughters, Tracey, was the named subscriber of the plans and managed the funds.

However, when one of the great-grandchildren sought funds from his RESP for tuition and educational expenses in 2024, his great aunt set a number of conditions on his access to the funds — including that he provide proof of having already paid his tuition — and, when he didn’t meet those conditions, she declared that he forfeited his claim to the money. She later closed his RESP, and one of his brother’s RESPs, and took the money for herself.

The siblings then brought a motion, seeking the payback of the money from the RESPs that were closed, and their great-aunt’s removal as the plans’ subscriber, among other things.

The great-aunt opposed the application, arguing that she is the legal owner of the assets, and that she can manage them how she sees fit, including closing the accounts.

“Tracey takes the position that once the $200,000 from Hugh’s investment was deposited into the joint bank account and transferred to her own account, these funds became her money and therefore it was she, not Hugh, who funded the RESP accounts,” the court noted — adding that she claimed that she decided to open these RESPs without her father’s knowledge.

However, the court rejected her arguments, finding that the evidence supported the finding that it was Hugh who established the RESPs for his great-grandchildren — and that she breached her duty as trustee by closing their accounts.

“[S]he has no explanation for her decision to close these accounts during this litigation. She is therefore responsible to repay the principal investment and she must also repay all realized and potential growth up to the date of this decision,” the court said.

For the two accounts that were closed, the court ordered that she must payback the original $50,000 to two new RESPs, plus the lost growth, based on the value of the two RESPs that weren’t closed — which were valued at $132,000.

As a result, the court ordered the beneficiaries of the two closed accounts are entitled to an additional $82,000.

Additionally, the court ordered that Tracey should be removed as the subscriber of the remaining RESPs, but it declined to appoint the children’s father as the subscriber and trustee, ruling instead that a neutral person should fill that role.

In declining to appoint the father to manage the accounts, among other things, the court noted that Hugh decided not to have the parents as subscribers in the first place, and “Given the distrust between the family members, having a neutral third party manage the RESP accounts will prevent any disputes or future challenges on how these funds are managed,” it said.