What Happens to Your TFSA When You Die?

An important PSA for TFSA holders!

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 Okay, all TFSA holders PLEASE watch this video and share it far and wide!! What happens to your TFSA when you die? Well, that depends. If you don’t designate a beneficiary or a successor holder, (more on that term in a moment) the assets will be distributed through your estate according to your will’s instructions.

You do have an up-to-date will, right? The estate receives the TFSA’s fair market value at the holder’s death tax-free – that makes sense. But it will have to pay some tax on any interest, dividends or capital gains that are earned after the date of death. Plus, the capital may be subject to probate fees.

Now, to avoid probate and simplify things, most TFSA holders wisely name a beneficiary, or a group of beneficiaries or a successor holder. Whom can you name a beneficiary? A kid, all your kids, your mother-in-law, your spouse, whomever you want. You could name me. You probably won’t, but just in case, my full name is David Barr Chilton.

That’s right, Barr. Don’t ask. Whom can you name as a successor holder? Your spouse or common-law partner. That’s it. I’m out. Why would you go this route? Because you love your partner, but as importantly, because that designation allows that person to inherit your TFSA account. Not just the money in it, the actual account.

That’s HUGE. Why? Because all that money can continue to grow free of tax. If you have a spouse or common law partner, I almost said and/or, but having both is rightly frowned upon – name him or her successor holder! As important, make sure she or he names you a successor holder of his or her TFSA. Get on this!

Now, important to note, if you screw up and name your spouse/common law partner as a beneficiary instead of as a successor holder, it actually can be fixed post-death. With proper paperwork filed by the end of the calendar year after the year of death, the TFSA can be rolled into the beneficiary’s TFSA without affecting his or her available contribution room.

But don’t screw around with that – it could easily slip between the cracks. Use the successor holder designation. David Barr Chilton.