TFSA and Death: Have You Planned For What Will Happen With Yours When You Die?

If you own a TFSA, you undoubtedly started it because it allows you to invest and earn dividend or interest income and make a capital gain without paying tax.

Unfortunately, similar to any investment vehicle, complications may arise after your death unless you address the tax consequences in advance. Consider the following circumstances that can affect what happens with your TFSA after you die.


If you have named a survivor — your spouse or common-law partner — as a successor holder, then that individual acquires all the rights of the original holder and thus becomes the new account holder.

With this scenario, the TFSA does not terminate and thus there are no tax consequences to the new account holder. An additional benefit may accrue if the original holder has overcontributed before they passed and the new account holder has contribution room in their TFSA.

In this situation, the overcontribution by the deceased can be absorbed by the new account holder into their TFSA, thereby eliminating the chance of future overcontribution penalties (currently at 1% per month).


Assume for a moment that the deceased did not designate the spouse or the common-law partner as a successor holder. What then?

If the spouse or common-law partner named in a will are accorded an inheritance that includes the TFSA, they can transfer their spouse’s TFSA to their own TFSA within a prescribed time period, called the “rollover period.”

The rollover timeframe is explained as starting at the time of death until December 31 of the following year. During this rollover period the investment income is sheltered from income tax.

If the beneficiary decides to transfer funds to their own TFSA during the rollover period, these transfers are considered to be “exempt contributions” and as such do not require that the beneficiary have room in their own TFSA. However, the amount of the transfer is limited to the fair market value (FMV) of the TFSA as at the original holder’s time of death.

Thus, if at the time of death, the FMV was $50,000 but at the time of transfer the value of the TFSA was $55,000, then the $50,000 could be transferred without any impact.

However, the $5,000 increase would either have to be absorbed by the beneficiary if they have room within their TFSA or be included within the beneficiary’s income within the year of the transfer.


When you die without a spouse or common-law partner, the TFSA is collapsed at the date of your death. The amount of the TFSA can be transferred to the named beneficiary tax-free, but only up to the amount of the FMV of the TFSA at the date of death. Naturally, the beneficiary would need to have TFSA room to absorb the FMV transfer.

For instance, if the beneficiary had $30,000 of accumulated TFSA room and the FMV of the transfer was $55,000, $30,000 would be transferred tax-free while the excess $25,000 would be considered withdrawn and part of the beneficiaries inheritance with no additional Canadian tax consequences.

This calculation does not account for any increase in FMV that may have occurred since the date of death.


It is worth noting that when a contribution is made to the successor holder’s TFSA, the successor holder has 30 days from the date of contribution to fill in Form RC 240, Designation of an Exempt Contribution Tax-free Savings Account (TFSA).

As you can see, there are potential tax complications with a TFSA when a taxpayer passes. Remember also that the provinces and territories are responsible for the rules governing the transfer of assets of a deceased.

Fortunately, the CRA and their provincial/territorial counterparts have agreed that having the named beneficiary on the TFSA application will allow transfers without inter-jurisdictional complications.

Quebec may be an exception, wherein the TFSA transfer goes to the estate and the will of the deceased comes into play.

Since TFSAs are registered with the CRA, an astute taxpayer would want to determine the tax consequences, either when their TFSA has a named survivor or when the will takes precedent.

It’s probably worthwhile to confirm that your CPA is aware that you have a TFSA. Then, should you die unexpectedly, your tax advisor can assist your successor holders or beneficiaries.

Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
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