Trust governed by a TFSA

When the last holder of a TFSA which governs a trust dies, the arrangement continues to be treated as a TFSA for certain limited purposes. The main effect is to allow the trust to maintain its tax-exempt status until the end of the exempt period, which is the earlier of the end of the year following the year of death of the holder or when the trust ceases to exist.

While the trust maintains its exempt status, any payment made from the trust during the exempt period to the deceased’s estate or another designated beneficiary will be included in the recipient’s income for the year it’s received, except to the extent designated by the trust as being attributable to the fair market value of the TFSA at death. That is, only the portion of the payment that represents the distribution of post-death investment income or gains will be taxable. See Examples - Tax treatments, for samples of what tax treatments may apply under certain circumstances.

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