TFSA’s Estate Planning & Beneficiaries

by Tax Guy - Burlington Accountant on January 15, 2009 Print This Post Print This Post

When a persons dies, the tax department considers them to have sold all of their assets right before they died.  If the deceased had any capital gains or losses these would be included in their final tax return.  However, what happens with the TFSA?

On death, the fair market value of your TFSA will transfer to your estate tax-free but any income or gain earned after death will be taxable.  Similarly, if the assets from your TFSA are left to beneficiaries under you will, the beneficiary receives the assets tax free but any income or gains earned after death will be taxable.

Under an amendment to the TFSA rules in the Income Tax Act, the assets in the TFSA will remain tax-free until the end of the year following the account holders’ death.  At that point, and if the TFSA is still open, the TFSA assets will become taxable.  This means that any beneficiary who receives amounts greater than the TFSAs fair market value at the date of death, must include that amount in their income regardless of the type of income earned after death.(interest, dividends or capital gains).

Married or Common Law Rollover

Married or common law spouses will be able to name a surviving spouse or partner as their successor account holder.  In this case the TFSA assets of the deceased would be able to be transferred tax-free to the surviving spouses TFSA without affecting their contribution room.

Beneficiary Designations

Unlike RRSPs or RRIFs, currently you cannot name a beneficiary on a TFSA.  This means that your TFSA must flow through your estate following death and would be subject to probate tax in those provinces with probate.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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