In provinces or territories that recognize TFSA beneficiary designation, the survivor can be designated as a successor holder in the TFSA contract or in the will.
A survivor can be named in the deceased holder's will as a successor holder to a TFSA, if the provisions of the will state that the successor holder acquires all of the holder's rights including the unconditional right to revoke any beneficiary designation, or similar direction imposed by the deceased holder under the arrangement or relating to property held in connection with the arrangement.
If named as the successor holder, the survivor will become the new holder of the TFSA immediately upon the death of the original holder. For more information, see Example 1 – Successor holder.
This rule applies for all three types of TFSA: deposit, annuity contract, and trust arrangement.
The deceased holder is not considered to have received an amount from the TFSA at the time of death if the holder named their survivor as the successor holder of the TFSA. In this situation, the TFSA continues to exist and the successor holder assumes ownership of the TFSA contract and all of its contents. However, where the TFSA contract is a trust arrangement, the trust continues to be the legal owner of the property held in the TFSA.
The TFSA continues to exist and both its value at the date of the original holder's death and any income earned after that date continue to be sheltered from tax under the new successor holder.
Except in cases where an excess TFSA amount remained in the deceased holder's TFSA at the time of their death, the successor holder's unused TFSA contribution room is unaffected by their having assumed ownership of the deceased holder's account.
The issuer will notify us of this change in ownership.
The successor holder, after taking over ownership of the deceased holder's TFSA, can make tax-free withdrawals from that account. The successor holder can also make new contributions to that account, depending on their own unused TFSA contribution room.
If the successor holder already had their own TFSA, then they would be considered as the holder of two separate accounts. If they wish, they can directly transfer part or all of the value from one to the other (for example, to consolidate accounts). This would be considered as a qualifying transfer and would not affect available TFSA contribution room.
In certain cases, a survivor, designated as the successor holder of a TFSA, may not have a valid Canadian social insurance number (SIN), which is one of the eligibility requirements for opening a TFSA. If the survivor is a Canadian resident, they should apply to Service Canada to obtain a valid Canadian SIN.
If the survivor is a non-resident, they should request an individual tax number from the CRA by filling out Form T1261, Application for a Canada Revenue Agency Individual Tax Number (ITN) for Non-Residents.
Excess TFSA amount at the time of death
If, at the time of death, there is an excess TFSA amount in the deceased holder's TFSA, a tax of 1% per month applies to the deceased holder on the highest excess TFSA amount for each month in which the excess remains, up to and including the month of death. The legal representative must file a Form RC243, Tax-Free Savings Account (TFSA) Return, and Form RC243-SCH-A, Schedule A – Excess TFSA Amounts, for that period.
Also, the successor holder is deemed to have made, at the beginning of the month following the date of death, a contribution to their TFSA equal to the amount by which the excess TFSA amount is more than the total fair market value, at the date of the holder's death, of all property under any arrangements that ceased to be a TFSA because of the holder's death. If that contribution creates an excess TFSA amount in the successor holder's TFSA, they will be subject to a tax of 1% per month on the highest amount for each month they have an excess contribution.
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