THIS INFORMATION IS OFFERED TO THE PUBLIC THROUGH:
Rutherford Cremation and Funeral Services
(James A. Rutherford Funeral Home)
804 Ontario St., Stratford, Ontario N5A 3K1
Email: [email protected] Website: www.jarfh.com
Phone: 519-271-5062
TFSA (Tax Free Savings Account) and what happens at death
There is a difference between a beneficiary on your TFSA plan documents and a successor holder on the TFSA plan documents.
A SUCCESSOR HOLDER may only be a spouse or a common-law partner.
A BENEFICIARY may be anyone you name as beneficiary.
But if your "beneficiary" is you spouse or common-law partner, I would highly suggest you change their designation on your TFSA to being a "Successor Holder."
Many TFSA plans allow you to designate both a successor holder and an alternate beneficiary but the beneficiary designation will only take effect if the successor holder is deceased. And if there is no successor holder or beneficiary, your TFSA assets will form part of your estate and be distributed according to the terms of your will.
The difference in appointing a spouse or common-law partner as either a beneficiary or a successor holder is this:
As a BENEFICIARY your spouse will pay tax on any increase in the value of your TFSA since the date of your death, so the beneficiary would want to deal with the TFSA amount quite soon to avoid paying tax on any interest or money the TFSA makes after you have died. They may still, however, have the option of making an “exempt contribution” of the TFSA proceeds to their own TFSA. This is all or a portion of the existing monies within the deceased’s TFSA at time of death. In order to make an exempt contribution they must receive and then contribute all or a portion of their deceased spouse’s TFSA proceeds into their own TFSA before the end of the calendar year following their spouse’s death. The beneficiary would need to designate the payments as an “exempt” contribution. Still, any money made after death is taxable.
As a SUCCESSOR HOLDER your spouse simply, automatically, becomes the holder of your account at the time of death and the TFSA continues to exist. The value of the TFSA and any income earned within the TFSA after you die is sheltered from tax. Your spouse may make contributions into that acquired TFSA based upon their own unused contribution room or withdraw from the TFSA as they see fit. And if your successor holder already has their own TFSA account, they would now own two. They can consolidate the two without affecting their TFSA contribution room.
Enquire about your TFSA designation with your financial advisor or financial institution.
Rutherford Cremation & Funeral Services is a "teaching" funeral home. For more easily understood information about all end-of-life matters please click on the link.
