When thinking about the future, it’s important to not only save some funds, but think about what happens to them after your passing. How can you make sure your TFSA transfers to your spouse in case of death? In this article, we’ll walk you through all the key steps to ensure that your hard-earned savings continue to benefit your loved ones as you intended.
TFSA stands for Tax-Free Savings Account and is a method to save some funds aside popular among many Canadians. As stated in its name, the main advantage of this option is that, unlike an RRSP, you don’t need to pay tax on your gains.
It does explain why TFSA is so popular. On top of that, the amount you can contribute to a TFSA is limited by the maximum of $95,000, which is quite a comfortable amount for many holders.
Successor Holder or Beneficiary
When planning for the transfer of a TFSA after death, it is important to understand one key difference. It lies in naming your spouse as a Successor Holder or a Beneficiary. It’s often optimal to settle on one of these options, so that you can transfer the assets without them going through the estate first. The choice between the two options determines how the TFSA will be handled after your passing. Each has different implications, so let’s delve into different ways of handling a TFSA transfer to a spouse after death.
Successor Holder
The first option is naming your spouse a Successor holder. Note that you can only name your spouse or common-law partner a Successor holder. In this case your TFSA becomes the successor holder’s TFSA under following conditions:
Account remains tax-free
Transfer happens automatically upon your death
Successor holder’s TFSA contribution room stays intact
The conditions are quite different in case you opt for the second option, which is naming your spouse your beneficiary.
Beneficiary
Contrary to the case with a successor holder, former spouses or partners can be qualified for the role of a beneficiary as well. In this case the funds amassed at the time of death can be transferred tax-free too, but there are several nuances to consider. If after death the TFSA’s value increases, this amount will be considered taxable and included as your official income.
If your spouse is named as your beneficiary, they will have time until December 31st of the year following the year of death to make an exempt contribution to their TFSA. This way the transfer won’t influence their own contribution room. In case meeting the deadline doesn’t seem possible, contacting a law consultant might be a prefferable option.
Not Stated
There are cases when the TFSA holder has chosen neither a Successor holder nor a Beneficiary beforehand. If the TFSA Successor Holder or beneficiary is not chosen, the funds will become part of the deceased estate. They are distributed in accordance to one’s will or on intestacy if there’s no will to address. It’s important to note that one will need to pay probate fees to access the TFSA. Additionally, any growth in the TFSA’s value after death will be taxable.
How to Designate a TFSA Successor Holder or Beneficiary
Designating your spouse as a Successor Holder or Beneficiary is a crucial step in your estate planning. Many choose to transfer TFSA to a spouse and wonder what’s the wisest way to go about it.
In reality the process is quite simple and in most cases won’t require professional assistance:
Reach out to the institution where your TFSA is held. They will provide you with the necessary forms to designate a Successor Holder or Beneficiary. Clearly indicate your spouse as the Successor Holder or Beneficiary on the form. Ensure that all the provided details are accurate to avoid complications later.
Make sure that your TFSA designations are consistent with your overall estate plan. This includes ensuring that your will and any other estate planning documents align with your TFSA designations. Double-checking such details will help avoid any conflicts.
Essential Steps for Managing a TFSA After a Spouse’s Death
When managing a TFSA after the death of a spouse in Canada, it is important to act promptly and follow the necessary legal steps. The process is easier for those named Successor Holder, seeing as funds will be transferred automatically without any fees.
In case you’re the deceased Beneficiary, you have until the end of next year to transfer the assets. First, notify the financial institution holding the TFSA about your spouse’s death and solicit the transfer. Within 30 days after transferring the funds, you will need to fill the RC240 form with the Canada Revenue Agency (CRA).
If the TFSA is part of the estate because no Successor Holder or Beneficiary was named, probate fees may apply. In this case any growth in the account after the date of death may be taxable to the estate. If you found yourself in such a situation, you might want to consult legal and financial advisors to navigate these steps and ensure compliance with Canadian laws. When seeking advise, make sure to choose estate lawyers experienced in the required field.
Conclusion
Transferring TFSA to a spouse after death can be a straightforward process if you plan ahead and make the right designations. By naming your spouse as a Successor Holder, you can ensure that the account continues to grow tax-free without impacting their contribution room. If you opt to name your spouse as a Beneficiary, be mindful of the deadlines and potential tax implications involved in transferring the assets.
TFSA Transfer After Death FAQ
What happens to my TFSA after death?
Upon your death, the TFSA can be transferred to your spouse or partner if they are named as a Successor Holder or Beneficiary. It may also form part of your estate if no designation is made.
Can I change my TFSA’s Successor Holder or Beneficiary designation at any time?
Yes, you can update your TFSA designations at any time by contacting your financial institution and completing the necessary forms.
Do probate fees apply if my spouse is named as the Successor Holder?
No, if your spouse is named as the Successor Holder, the TFSA bypasses the estate. This helps avoid probate fees when transferring the TFSA funds.
