Join millions of Canadians who have already trusted Loans Canada
Apply Now

A Tax-Free Savings Account (TFSA) is a great way to set money aside tax-free. Contributions are generally tax-free, as is any income earned in the TFSA. These are tax-free even when they are withdrawn from the account. To open or contribute to a TFSA, you must be 18 years of age or older and have a valid social insurance number (SIN).

What Happens to Your TFSA When You Die?

Your TFSA does not simply disappear when you die. It goes to either a designated successor holder or beneficiary. You must name these parties before your death in your TFSA contract or your will.

Your TFSA contribution room cannot be passed on to a successor holder or beneficiary.

Successor Holder

A successor holder is the spouse or common-law partner of the TFSA account holder at the time of their death. That person becomes the new account holder. They have the same rights as the TFSA account holder, including the right to revoke any beneficiary designation and to make contributions (provided the successor holder has unused contribution room). 

All provinces and territories except Quebec allow for the designation of a successor holder for a TFSA. They can be designated in the TFSA contract or a will.

Successor holders become the new TFSA holders, and the TFSA continues growing tax-free. Keep in mind that any contributions that exceed the limit will be taxed.

Check out the difference between a TFSA and an RRSP.

Beneficiary & Non-Spousal Beneficiary

A beneficiary is named as the new account holder of the TFSA in the TFSA contract or in the deceased TFSA account holder’s will.

If the deceased TFSA account holder’s spouse or common-law partner has been designated as a beneficiary instead of a successor holder, they can contribute some or all of the TFSA value to their own TFSA by designating it as an exempt contribution. Their own unused TFSA contribution room is not affected. Non-spousal beneficiaries cannot make exempt contributions to their TFSAs.

The fair market value of the TFSA immediately before the deceased TFSA account holder’s death is tax-free, but any income earned on the TFSA’s assets or increase in their fair market value is taxed as ordinary income.

Protect your family by getting life insurance.

What If You Don’t Have a Designated Successor Holder or Beneficiary?

If you don’t have a designated successor holder or beneficiary, your TFSA falls to your estate. This will add your TFSA to the value of your estate. Your estate will thus need to pay larger probate fees, which are the fees associated with having the courts legally approve your will. The assets in your TFSA are taxed as ordinary income.

Check out these tax credits for seniors.

The Importance of Estate Planning

To avoid complications with your TFSA after you die, dictate what you want to be done with it in your will or name beneficiaries or a successor holder before you die. If you name your estate as the recipient, you can distribute the TFSA proceeds based on the terms of your will.

In provinces and territories that allow successor holders, you can appoint the successor holder in your will. You can also designate beneficiaries in your will.

Frequently Asked Questions

Who can be a TFSA account beneficiary?

Anyone can be a TFSA account beneficiary provided that they have been designated in the TFSA contract. Beneficiary status allows for parties other than a spouse or common-law partner to benefit from the TFSA.

What if the deceased TFSA holder has over-contributed to their TFSA?

If the deceased TFSA account holder has over-contributed to their TFSA, a tax of 1% per month applies to the new account holder for each month that the over-contribution remains in the TFSA. This tax starts in the month of the deceased TFSA account holder’s death. In this case, Form RC243, Tax-Free Savings Account (TFSA) Return and Form RC243-SCH-A, Schedule A – Excess TFSA Amounts must be filled out by a legal representative. Upon the TFSA holder’s death, the successor holder is considered to have made a contribution to their TFSA equal to the deceased TFSA holder’s over-contribution. If that contribution results in an over-contribution to the successor holder’s TFSA, they are subject to a 1% tax monthly until the excess contribution is removed from the account.
Do you have to pay interest on the deceased TFSA holder’s TFSA?
After taking ownership of the deceased holder’s TFSA, the successor holder can make tax-free withdrawals from that account. Depending on their own unused TFSA room, the successor holder can also make new contributions to that account.

Final Thoughts

A TFSA is a great way to set money aside tax-free. When you die, your TFSA goes either to a successor holder or beneficiaries named before your death. If you don’t have a designated successor holder or beneficiaries, the TFSA falls to your estate where it will result in larger probate fees. Therefore, you should either designate the successor holder or beneficiaries in your TFSA contract or your will. Other than a 1% monthly tax on over-contributions to a TFSA, further contributions are generally tax-free.

Matthew Taylor avatar on Loans Canada
Matthew Taylor

Matthew joined the Loans Canada writing team in 2021 while was finishing up a Bachelor's degree at the University of Saskatchewan. It was there that he discovered his love of writing. His work has appeared in several publications, including the Canadian Student Review and NewEngineer.com. In his spare time, Matthew enjoys reading, geocaching, and spending time with his family and pets.

More From This Author

Special Offers

More From Our Experts

https://loanscanada.ca/wp-content/uploads/2023/06/Fido-Refer-A-Friend.png
Fido Refer-A-Friend Program

By Lisa Rennie
Published on June 1, 2023

The Fido Refer-A-Friend program is unique. You can earn up to 5 free months of Fido cell service EVERY year. That is almost 50% off your bill.

https://loanscanada.ca/wp-content/uploads/2023/06/Assessed-value-vs.-market-value.png
Assessed Value vs. Market Value: How Does It Affect Your Home Equity?

By Mortgage Maestro

How do assessed value and market value differ? Find out how your market value and assessed value affects your home equity?

https://loanscanada.ca/wp-content/uploads/2019/11/Home-equity-loan-canada.png
How To Borrow Using Your Home Equity In 2023

By Lisa Rennie

Do you have equity in your home? Find out how you can get a home equity loan in Canada and how much you can borrow.

https://loanscanada.ca/wp-content/uploads/2023/05/Keepa-Review.png
Keepa – Amazon Price Tracker

By Bryan Daly

If you want to shop or sell on Amazon, you need to know about Keepa. Keepa is a browser extension that tracks Amazon prices and

https://loanscanada.ca/wp-content/uploads/2023/05/Used-car-loans.png
Should You Get a Loan for a Used Car?

By Bryan Daly

Used cars loan can help you purchase a car even if you can’t pay it outright. The question is, should you get a loan for a used car?

https://loanscanada.ca/wp-content/uploads/2021/12/Best-Credit-Cards-For-Low-Income-Earners.png
Best Credit Cards For Low Income Earners 2023

By Lisa Rennie

If you're worried about qualifying for a credit card because you have a low income, check out these credit cards for low income requirements and great...

https://loanscanada.ca/wp-content/uploads/2023/05/Credit-memo-canada-.png
Why Did You Recieve A Credit Memo In Canada?

By Bryan Daly

Have you ever received a credit memo in Canada? Wondering why you got it? If you’ve ever returned a product, you may receive a credit memo instead of ...

https://loanscanada.ca/wp-content/uploads/2020/04/Personal-Loan-Alternatives-.png
What Do You Need To Borrow Money In Canada?

By Lisa Rennie

When you need to borrow money, there are many options to choose from. But finding the right option can be hard. Let's find out which one is right for ...

Recognized As One Of Canada's Top Growing Companies

Loans Canada, the country's original loan comparison platform, is proud to be recognized as one of Canada's fastest growing companies by The Globe and Mail!

Read More

Why choose Loans Canada?

Apply Once &
Get Multiple Offers
Save Time
And Money
Get Your Free
Credit Score
Free
Service
Expert Tips
And Advice
Exclusive
Offers

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.

Koho Prepaid Credit Card