What Happens to Your TFSA When You Die in Canada?

A tax-free savings account does not simply disappear when the holder dies. What happens next depends mostly on who, if anyone, you named on the account, and on how the account is set up.

This article explains the basic outcomes under federal tax rules, and what the CRA treats as tax-free and what it treats as taxable. It is general information, not advice for your situation.

This article covers Canadian federal tax law, which applies in every province.

Who you name decides the outcome

A successor holder is the surviving spouse or common-law partner named in the TFSA contract or in the will. On the holder's death they immediately become the new holder and take ownership of the TFSA.

Anyone other than a successor holder, such as family, other people or organizations, is a designated beneficiary. A designated beneficiary receives the account's value rather than taking over the account. If no successor holder or beneficiary is named, the TFSA assets are directed to your estate and the will governs distribution.

To set or change a designation, you contact your TFSA issuer.

If your spouse or partner is the successor holder

This is usually the simplest result. The deceased is not considered to receive an amount from the TFSA on death, so the account continues as a TFSA with its tax-free status intact.

• The successor holder's own contribution room is generally not affected, and they do not gain the deceased holder's unused room.
• The successor holder must have a valid social insurance number or individual tax number.
• The issuer informs the CRA of the change in ownership.

A common-law partner is a person who is not your spouse, with whom you are living in a conjugal relationship and who meets a further condition, such as having lived with you for at least 12 continuous months or being the parent of your child.

Quebec is an exception: it does not recognize the successor holder designation for TFSAs, though a Quebec surviving spouse can still make an exempt contribution.

If a beneficiary or the estate receives the money

Here the account does not simply carry on in someone else's name. Beneficiaries generally pay no tax on amounts up to the TFSA's fair market value at the date of death. Fair market value means the highest price, expressed in money, obtainable in an open and unrestricted market between informed, prudent parties dealing at arm's length, neither under compulsion to buy or sell.

Earnings made after the date of death and before the estate is settled are taxable, because the tax-free part is limited to the value at death. For deposit or annuity TFSAs without a successor holder, the account stops being a TFSA on the holder's death, and all earnings after death are taxable to the beneficiary.

Tax-free versus taxable at a glance

What to do next

• Ask your TFSA issuer who is currently named on each account.
• Decide whether your spouse or common-law partner should be a successor holder, and confirm the wording with the issuer or in your will.
• Check that any will designation says the successor holds all the same rights as the original holder, including the right to change beneficiary designations.
• Tell your executor which accounts exist and where the records are kept.
• If you live in Quebec or have a large or complicated account, speak with a lawyer or accountant.

Frequently asked questions