Can a TFSA be paid to the estate instead of a beneficiary in Canada?
This answer covers Canadian federal tax law, which applies in every province.
Yes. If no successor holder or beneficiary is named, the TFSA assets are directed to the deceased holder's estate, and the will governs how they are distributed. A named beneficiary receives the account's value, and a successor holder takes over the account itself.
On the tax side, beneficiaries generally pay no tax on amounts up to the TFSA's fair market value at the date of death, but how this applies to an estate depends on your situation, so confirm with a lawyer. Earnings made after death and before the estate is settled are taxable, because the tax-free part is limited to the fair market value at death. The deceased's excess TFSA amount is taxed at 1% per month up to and including the month of death, and the legal representative files Form RC243 and Schedule A (RC243-SCH-A).
The exempt contribution rules speak of a survivor who receives TFSA payments as beneficiary, and they are not available if the deceased's TFSA had an excess TFSA amount or if more than one survivor receives payments. Whether an heir receiving funds through the estate can use them depends on the facts, so confirm with a lawyer or accountant.
Key takeaways
- If no successor holder or beneficiary is named, the TFSA assets are directed to the deceased holder's estate and the will governs distribution.
- Beneficiaries generally pay no tax on amounts up to the TFSA's fair market value at the date of death, but how the tax rules apply when the TFSA is paid to the estate depends on your situation, so it is worth confirming with a lawyer.
- Earnings made after death and before the estate is settled are taxable, because the tax-free part is limited to the fair market value at death.
- An exempt contribution is not possible if the deceased's TFSA had an excess TFSA amount or if payments are received by more than one survivor.