FHSA When the Holder Dies: Beneficiary or Successor Holder?

A First Home Savings Account is meant to help someone save for a first home. When the holder dies, the account does not simply disappear or automatically go to the family. What happens depends on who is named and how they are related to the holder, and the tax result can be very different from one route to the next.

This article explains the difference between a successor holder and a beneficiary, how each is treated for tax, and what an estate trustee or family member should do first. The rules are the Canada Revenue Agency's, so confirm current details with the CRA or an accountant for your own situation.

Successor holder versus beneficiary

A successor holder takes over the account itself. A beneficiary receives money or property out of the account. The tax treatment of the two is different, and that is why the choice matters.

A spouse or common-law partner of the holder immediately before death is a survivor, and only a survivor may be designated as successor holder. A child, parent, sibling or friend can be named as a beneficiary, but cannot be a successor holder.

The routes compared

What counts as a qualifying individual, and any other conditions, are set by the CRA. Confirm them before relying on this route.

How the tax works for each route

Successor holder. A successor holder who is a qualifying individual becomes the holder immediately after death, and normal FHSA rules apply. How this plays out for a particular surviving spouse depends on their situation, so it is worth confirming with an accountant.

Survivor who is not the successor holder. A survivor can move the funds by direct transfer into their own FHSA, RRSP or RRIF with no immediate tax. If they instead take the money out, taxable distributions to a beneficiary or estate are reported on a T4FHSA, or on an NR4 for non-residents.

Other beneficiaries. A beneficiary who is not a survivor has no tax-deferred transfer available. Amounts they receive during the exempt period are included in their income for the year received. Any property remaining in the account at the end of the exempt period is also included in income, in proportion to their entitlement. The exempt period is a window after the death that the CRA defines, so check the CRA's page for the exact dates in your case.

The estate. If no beneficiary is designated, the amounts go to the estate and are treated as income of the estate. That can affect the estate's tax and the timing of distributions to the people who inherit, which is worth discussing with an accountant.

Points that often cause confusion

• Being named in a will is not the same as being named as successor holder. Only a survivor can be designated successor holder.
• A child or other relative who is not a survivor cannot defer the tax by moving the money into their own plan.
• A survivor who is not the successor holder has the option of a direct transfer, which avoids immediate tax.
• Reporting slips differ: T4FHSA for taxable distributions, and NR4 for non-residents.
• These rules are different from the rules for RRIFs and RRSPs, so do not assume the same answer applies.

What to do next

An estate trustee is responsible for collecting assets, paying taxes and debts, and winding up the deceased's affairs. If you are the trustee or a family member, a calm first pass is usually enough to put things in order.

• Find the latest FHSA statement and the financial institution that holds the account.
• Ask the institution who is named as successor holder or beneficiary, and ask for confirmation in writing.
• Confirm whether the holder had a spouse or common-law partner immediately before death.
• If a survivor is involved, ask whether a direct transfer to their own FHSA, RRSP or RRIF suits them.
• Keep any T4FHSA or NR4 slips, and give them to whoever prepares the tax returns.
• Speak with an accountant or lawyer before any money is paid out, because the tax is generally decided by who receives it and when.

Frequently asked questions