By now, most of us have tax-free savings accounts (TFSA’s). Despite some early (and perhaps ongoing) confusion on as to how they work particularly with regard to deposits and withdrawals, TFSA’s appear to be working fine for all those who have them.
Have you thought about what happens to your TSFA’s upon your death?
If your spouse is the designated beneficiary of your TFSA then it’s simple, your spouse will become the new holder of your TFSA without effecting your spouse’s own TFSA or contribution eligibility. And the good news, the TFSA is not subject to probate. However, your spouse now holds two or more TFSA’s: If your spouse wishes to roll your TFSA over to his or her TFSA, without effecting eligible contribution room, it appears to be a bit complicated. Your spouse has to be entitled to the TFSA, in other words, you have to make a specific bequest in your will. Elections have to be filed. Then your spouse will have to make arrangements to transfer your TFSA to the one held by him or her within an exemption period: Any income earned in your TFSA between the time of your death and the date of rollover could be effectively taxed in your spouse’s hands. Excess contributions to your TSFA at the time death will also complicate the rollover.
If you have non-spousal beneficiaries, I am afraid you are out of luck. Effectively your TSFA dies with you. Fortunately there is no tax on your death and your beneficiaries are deemed to have acquired the assets at fair market value. Your beneficiaries can roll the funds into their TSFA’s as long as they have contribution room to do so. If your TSFA is a trust administered by a licensed trust company, a deferral might be available to your beneficiaries.
Like a lot of matters, you should consult your professionals when it comes to determining what you want done with your TSFA’s upon your death.