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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{ 5 comments }

Estate Planning Attorney January 23, 2009 at 3:46 pm

Thank you for the education on estate planning and TFSA’s. I have always had certain questions about TFSA’s and you answered every single one of them. Thanks for the helpful and informative resource!

richard choate February 2, 2009 at 9:12 pm

My uncle who lives in the U.S. has rural land with no buidings whatsoever in Ontario he has owned and kept all taxes paid since 1950’s , and wants to transfer the ownership of the land to me also a U.S. citizen with no purchase price involved, what is the simplest and less costly way to do this? Thank you for your help with this.

Tax Admin February 2, 2009 at 10:34 pm

You should hire a property lawyer in the US to do the transfer. The lawyer will ensure your costs are kept to a minimum.

Also, engage a Canadian accountant who was US tax experience. You would be more likely to find someone in Canada with experience in both countries.

The transfer will be considered a disposition of taxable Canadian property and 15% of the gain may need to be remitted to the Canadian Government on the transfer of ownership.

There may also be US tax implications as well.

Judy February 4, 2012 at 2:24 pm

A friend declared bankruptcy only a few months ago. They did not do a debt consolodation, everything has been settled but it wiped out their credit history and they had to surrender several assets except the mortgage on his home.

Recently his brother died he received a $100,000 death benefit from the workplace.
Does he have to pay taxes on this?
Does he now have to pay past creditors?
What are his obligations to the bank?

Tax Guy February 5, 2012 at 2:41 pm

No tax
On the inheritance. I can’t comment on the rest.

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