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RRSPs RRIFs and TFSAs -> Tax-free savings accounts (TFSAs) -> Death of the TFSA holderTax-free savings accounts (TFSAs) - death of the TFSA holderA TFSA holder can name a spouse or common-law partner as the "successor holder" in the TFSA contract. On the death of the holder, the spouse becomes the new holder, keeping the tax exempt status of the TFSA. This will not affect the TFSA contribution room of the spouse. The Income Tax Act only allows the tax exempt status of the TFSA to be passed on to a spouse or common-law partner. If some other person is named as a beneficiary of the TFSA, the account will no longer be a TFSA. Whether or not a beneficiary can be named in a TFSA contract depends on provincial legislation. By now, most provinces have probably revised their legislation to allow for this. Check with your financial institution. Assets with named beneficiaries such as life insurance policies or RRSPs are usually excluded in determining the value of an estate for purposes of probate. It is likely that a TFSA with a named beneficiary would also be excluded from probate. Again, this would depend on provincial legislation. For example, the British Columbia Law and Equity Act S. 49 provides that if, in accordance with the terms of a registered plan (which includes a TFSA), an annuitant designated a person to receive a benefit payable under the plan in the event of the annuitant's death,
Where no successor holder is named for the TFSA, the proceeds of the account will become part of the estate of the deceased. If a surviving spouse/common-law partner receives proceeds from the TFSA, the proceeds can be used to make an exempt contribution to the survivor's TFSA, and not affect the contribution room of the survivor, as long as
Where there is no spouse or common-law partner named as the successor holder, the TFSA will not lose its tax-exempt status until the the earlier of
Any payments to beneficiaries, including during this exempt period, will be taxable to the beneficiaries, to the extent that the payment includes income or capital gains earned after the death of the holder. Example: Holder dies with TFSA valued at $80,000. By the time the assets are distributed to the beneficiaries, the value has grown to $82,000. $2,000 will be taxable income to the beneficiaries. |
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Canada Revenue Agency (CRA) resources:
Tax tip: If it is possible (provincially regulated), designate your spouse as the successor holder in your TFSA contract, to avoid including the TFSA in assets subject to probate, and to avoid having to change your will. |
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