TFSA and Death: Have You Planned for What Will Happen With Yours if You Die?

TFSA and Death


If you own a TFSA, you undoubtedly started it because it allows you to invest and earn dividend or interest income and make a capital gain without paying tax.

Unfortunately, similar to any investment vehicle, complications may arise after your death unless you address the tax consequences in advance. Consider the following circumstances that can affect what happens with your TFSA after you die.

Successor Holder

If you have named a survivor — your spouse or common-law partner — as a successor holder, then that
individual acquires all the rights of the original holder and thus becomes the new account holder.

With this scenario, the TFSA does not terminate and thus there are no tax consequences to the new account
holder. An additional benefit may accrue if the original holder has overcontributed before they passed and the new account holder has contribution room in their TFSA. In this situation, the overcontributi on by the deceased can be absorbed by the new account holder into their TFSA, thereby eliminating the chance of future overcontribution penalties (currently at 1% per month).

Rollover Period

Assume for a moment that the deceased did not designate the spouse or the common-law partner as a
successor holder. What then?

If the spouse or common-law partner named in a will are accorded an inheritance that includes the TFSA,
they can transfer their spouse’s TFSA to their own TFSA within a prescribed time period, called the
“rollover period.” The rollover timeframe is explained as starting at the time of death until December 31 of the following year. During this rollover period the investment income is sheltered from income tax.

If the beneficiary decides to transfer funds to their own TFSA during the rollover period, these transfers are considered to be “exempt contributions” and as such do not require that the beneficiary have room in their own TFSA. However, the amount of the transfer is limited to the fair market value (FMV) of the TFSA as at the original holder’s time of death. Thus, if at the time of death, the FMV was $50,000 but at the time of transfer the value of the TFSA was $55,000, then the $50,000 could be transferred without any impact.
However, the $5,000 increase would either have to be absorbed by the beneficiary if they have room within
their TFSA, or be included within the beneficiary’s income within the year of the transfer.

Named Beneficiary

When you die without a spouse or common-law partner, the TFSA is collapsed at the date of your death. The
amount of the TFSA can be transferred to the named beneficiary tax-free, but only up to the amount of the
FMV of the TFSA at the date of death. Naturally, the beneficiary would need to have TFSA room to absorb
the FMV transfer. For instance, if the beneficiary had $30,000 of accumulated TFSA room and the FMV of
the transfer was $55,000, $30,000 would be transferred tax-free while the excess $25,000 would be included in income in the year of transfer.

Form RC 240

It is worth noting that when a contribution is made to the successor holder’s TFSA, the successor holder has 30 days from the date of contribution to fill in Form RC 240, Designation of an Exempt Contribution Taxfree Savings Account (TFSA).

As you can see, there are potential tax complications with a TFSA when a taxpayer passes. Remember also
that the provinces and territories are responsible for the rules governing the transfer of assets of a deceased.
Fortunately, the CRA and their provincial/territorial counterparts have agreed that having the named
beneficiary on the TFSA application will allow transfers without interjurisdictional complications. Quebec may be an exception, wherein the TFSA transfer goes to the estate and the will of the deceased comes into play.

Since TFSAs are registered with the CRA, an astute taxpayer would want to determine the tax consequences,
either when their TFSA has a named survivor or when the will takes precedent.

It’s probably worthwhile to confirm that your CPA is aware that you have a TFSA. Then, should you die
unexpectedly, your tax advisor can assist your successor holders or beneficiaries.



The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.


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