What happens to my TFSA when I die in Ontario?
The treatment of a TFSA on death depends on how it is set up and who is named. A TFSA holder can name their spouse or common-law partner as a "successor holder." In that case, the spouse inherits the TFSA and it simply becomes their own TFSA — they do not use up any of their own contribution room, and the account continues to grow tax-free seamlessly.
If a non-spouse individual is named as a beneficiary, the TFSA proceeds are paid directly to that person, and the fair market value of the TFSA at the date of death is generally received by the beneficiary tax-free. However, any growth earned inside the TFSA after the date of death (before the account is closed and proceeds paid out) may be taxable to the beneficiary.
If the estate is named as beneficiary or no beneficiary is named, the TFSA proceeds go through the estate, where they are subject to estate administration tax and potentially delays.
Unlike an RRSP, a TFSA's value at death is generally not added to the deceased's terminal return income.
Key takeaways
- Naming a spouse as successor holder keeps the TFSA intact and tax-free
- Named non-spouse beneficiaries receive the TFSA value tax-free at the date of death
- Growth after the date of death may be taxable to the beneficiary
- Naming the estate as beneficiary is usually less tax-efficient