What will happen to your TFSA when you die?

When TFSA was launched in January 2009, most of the provinces did not have legislation in place to designate a beneficiary in the plan. But now all the provinces except Quebec have the legislation designate a beneficiary in the plan.

Call your TFSA provider and ensure you have the beneficiary designation in the plan. If not your estate will be the beneficiary and those assets will be part of probate fees calculation.

Who can be your beneficiary?

• You can designate your spouse or common-law partner as your successor holder in plan or in the will. The plan or will should clearly say that you are designating your spouse or common-law partner as successor holder. This is means if you die the spouse or common-law partner will become holder of the TFSA and the assets can remain in the TFSA without any tax implications to your spouse or common-law partner. This will not affect your spouse or common-law partner’s contribution room either.

Example A

Gill opened a TFSA account on Jan 15 2010 and contributed $7500. She designated her spouse John as successor holder and she died on Mar 7th 2010 and on that date the plan value is $8250. When John provides all the required documentation to the TFSA provider, they will change the name of the account to his name. The amount will not be taxable to John and it will not affect his contribution room.

• You can designate any one as beneficiary and proceeds will be paid to the beneficiary. There will not be any tax implications to the beneficiary up to the date of death value and if the beneficiary wants to contribute to TFSA, he \she has to use her contribution room (except for spouse or common-law partner)

Example B

Gill opened a TFSA account on Jan 15 2010 and contributed $7500. She designated her sister Eva as beneficiary and Gill died on Mar 7th 2010 and on that date; the plan value is $8250. Eva provided all the required documentation to the TFSA provider on May 1st 2010 and on that day; the plan value is $8400. Eva will receive $8400 from TFSA provider and if she wants to contribute TFSA, she has to make sure she has contribution room available. It will be considered as a new contribution. She will also receive a T4A tax slip from the TFSA provider for $150 (post death increase $8400-$8250).

Example C

Gill opened a TFSA account on Jan 15 2010 and contributed $7500. She designated her spouse John as beneficiary and Gill died on Mar 7th 2010 and on that date; the plan value is $8250. John provided all the required documentation to the TFSA provider on May 1st 2010 and on that day; plan value is $8400. John will receive $8400 from the TFSA provider and he can contribute $8400 to his TFSA without affecting his contribution room. In order to achieve this, he has to make the contribution to his TFSA is done before the end of the year following the year of death (i.e. Dec 31st 2011) and file RC240 form with CRA within 30 days of making the contribution. John will also receive a T4A tax slip from TFSA provider for post death income.

Example D

Gill opened a TFSA account on Jan 15 2010 and contributed $7500. She did not have a beneficiary designation in the plan or in the will for her TFSA. Gill died on Mar 7th 2010 and on that date; the plan value is $8250. As she did not have any beneficiary designation, her estate is the beneficiary of the TFSA plan. Her executor Paul provided all the required documentation to TFSA provider on May 1st 2010 and on that day; the plan value is $8400. Estate will receive $8400 from the TFSA provider and estate will also receive a T4A tax slip from TFSA provider for $150 (post death income). The proceeds of $8400 will be included in probate fee calculation.

Here is the CRA link regarding TFSA.